Transcript Catching-Up or Getting Stuck? Europe`s Troubles to Exploit ICT`s

Catching-Up or Getting Stuck? Europe’s Troubles
to Exploit ICT’s Productivity Potential
Bart van Ark & Robert Inklaar
University of Groningen
and The Conference Board
Presentation for EU KLEMS Public Session on
”The Determinants of Europe’s Productivity Revival”
13 May 2005
Bank of Finland
Helsinki
This project is funded by the European Commission, Research Directorate
General as part of the 6th Framework Programme, Priority 8, "Policy Support
and Anticipating Scientific and Technological Needs".
1
Pre-EU KLEMS Databases Used
(http://www.ggdc.net/dseries/)
 GGDC/TCB Total Economy Database:

GDP, Employment, Hours, Labour Cost

100 countries, 1950-2004 (link to Maddison’s historical
data)

PPP-converted (2002 EKS PPP & 1990 GK PPP)

The Conference Board, Performance 2005
 GGDC 60-Industry Database

Value Added, Employment, Hours

58 industries, +/- 25 OECD countries, 1979-2003 (linked
to OECD STAN)

Harmonized deflation for ICT production and aggregation

Van Ark, Inklaar & McGuckin (GD-60) and EU Report
(O’Mahony and van Ark, 2003)
2
Pre-EU KLEMS Databases Used
(http://www.ggdc.net/dseries/)
 GGDC Total Economy Growth Accounting
Database

Macro growth accounting, incl. ICT breakout in capital
and TFP

EU-15 countries and US, 1980-2004

Timmer, Ypma and van Ark (GD-67); forthcoming in
Oxford Economic Papers (2005)
 Industry Growth Accounting Database

Industry growth accounting, incl. ICT breakout in capital
and labour quality

France, Germany, Netherlands, UK, US, 1979-2003

EU Report (O’Mahony and van Ark, 2003) and Inklaar,
O’Mahony and TImmer (GD-68)
3
EU labour productivity and hours growth
slowed further down since 2000 – and U.S.
is in stronger lead
US
EU-15
EU-10
US
Real GDP
1987-1995
1995-2004
of which:
1995-2000
2000-2004
of which:
2004
EU-15
EU-10
Total Hours
US
EU-15
EU-10
Labour productivity
2.7
3.4
2.2
2.2
2.6
3.8
1.6
0.9
0.0
0.7
-0.5
-0.6
1.1
2.5
2.3
1.5
3.1
4.3
4.1
2.5
2.7
1.4
4.0
3.4
1.9
-0.4
0.9
0.4
0.0
-1.3
2.1
2.9
1.8
1.0
4.0
4.7
4.4
2.1
4.8
1.4
0.8
0.4
3.0
1.3
4.3
-1.3
0.8
-0.8
0.7
acceleration
2000-2004 over
1995-2000
-1.6
-1.3
-0.6
-2.3
-0.5
Germany: until 1991 only West Germany; from 1991 All Germany
University of Groningen and Conference Board, 2005
4
The slowdown is EU productivity growth
is of a structural nature
Trend growth of annual growth in GDP per hour worked, US and EU-15, 1979-2004
with Hodrick and Prescott (1997) filter
3.5%
U.S.
3.0%
2.5%
2.0%
1.5%
1.0%
EU-15
0.5%
0.0%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
US
EU15
5
Macro growth accounting
6
Does ICT Matter?
Three channels through which Information and
Communication Technology (ICT) impacts on
productivity growth:

1st channel: Effect of ICT investment on labour
productivity growth through ICT capital
deepening

2nd channel: Rapid technological change in
ICT producing industries leading to TFP growth

3rd channel: Total Factor Productivity (TFP)
growth in industries that make intensive use of
ICT (knowledge spillovers)
7
The Impact of ICT on Economic Growth
3: spillover
channel ??
1: investment
channel
2: technology
channel
© Erik Bartelsman/Jeroen Hinloopen
8
Slowdown in ‘non-ICT’ capital and ‘non-ICT’ TFP are
major drivers of EU15 slowdown since 1995
4.0
Sources of Labour Productivity Growth, Total Economy (Macro-Measured)
EU-15 and U.S., 1987-1995 and 1995-2004
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
EU-15
EU-15
U.S.
U.S.
1987-1995
1995-2004
1987-1995
1995-2004
ICT capital deepening
Non-ICT capital deepening
ICT-production TFP
Non-ICT TFP
Since 2000, ICT capital deepening slowed to pre-1995
levels, but U.S. shows acceleration in ‘non-ICT’ TFP
4.0
Sources of Labour Productivity Growth, Total Economy (Macro-Measured)
EU-15 and U.S., 1995-2000 and 2000-2004
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
EU-15
EU-15
U.S.
U.S.
1995-2000
2000-2004
1995-2000
2000-2004
ICT capital deepening
Non-ICT capital deepening
ICT-production TFP
Non-ICT TFP
Focus on market sector of economy
accentuates EU4-US gap further
Sources of Labour Productivity Growth, Market Economy
(Aggregated from Industry Level), EU-4 and U.S., 1995-2000 and 2000-2003
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
1995-2000
2000-2003
1995-2000
EU-4 (DE,FR,NL,UK)
Labour Q&R
ICT capital deepening
2000-2003
U.S.
Non-ICT capital deepening
ICT production TFP
Non-ICT TFP
Pre-2000 leading ICT capital deepening
for a small number of EU member states
ICT capital deepening contribution, 1995-2000 (Channel 1)
Spain
France
Greece
Italy
Luxembourg
Finland
Netherlands
Germany
Austria
Portugal
Ireland
UK
Denmark
Belgium
Sweden
EU-15
US
0.00
0.20
0.40
0.60
0.80
1.00
Post-2000 slowdown of ICT capital deepening
across the board
ICT capital deepening contribution, 1995-2000 & 2000-2004
Spain
2000-2004
France
1995-2000
Greece
Italy
Luxembourg
Finland
Netherlands
Germany
Austria
Portugal
Ireland
UK
Denmark
Belgium
Sweden
EU-15
US
0.00
0.20
0.40
0.60
0.80
1.00
Post-2000 slowdown in TFP from ICT production
bigger in U.S. than in EU countries
ICT TFP contribution, 1995-2000 & 2000-2004 (Channel 2)
Luxembourg
2000-2004
Greece
1995-2000
Denmark
Netherlands
Belgium
Spain
Portugal
Germany
Italy
Austria
France
UK
Sweden
Finland
Ireland
EU-15
US
0.00
0.50
1.00
1.50
2.00
Since 2000 only UK, Sweden and US show improvement in
“non-ICT” TFP, and Finland and Greece also remain high
Non-ICT TFP contribution, 1995-2000 & 2000-2004 (incl. channel 3)
Spain
2000-2004
Italy
1995-2000
UK
Netherlands
Denmark
Germany
Portugal
Sweden
France
Austria
Belgium
Luxembourg
Greece
Ireland
Finland
EU-15
US
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
Before 2000 no evidence of spillovers from
ICT use to TFP
ICT and "Non-ICT" TFP growth, 1995-2000
3.0
2.5
FIN
IRE
2.0
"Non-ICT" TFP growth
GRC
LUX
1.5
BEL
AUT
TFP=-0.14*ICT + 1.05
(-0.16 )
,
2
R = 0.0017
FRA
1.0
DEU
0.5
PRT
SWE
DNK
UK US
NLD
EU-15
ITA
0.0
0.1
-0.5
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
ESP
-1.0
ICT capital deepening contribution to labour productivity growth
1.0
1.1
1.2
Development since 2000 are suggestive of the possibility
of spillovers from ICT use to TFP
ICT and "Non-ICT" TFP growth, 2000-2004
2.5
2.0
SWE
GRC
"Non-ICT" TFP growth
1.5
US
FIN
1.0
UK
0.5
IRE
FRA
NLD
0.0
0.1
-0.5
-1.0
TFP= 3.91*ICT - 1.12
(1.91)
,
2
R = 0.19
DEU
0.3 EU-15
0.2
AUT
0.4
BEL
DNK
PRT
ESP
LUX
ITA
-1.5
ICT capital deepening contribution to labour productivity growth
0.5
0.6
Alternative specifications show similar results
1995-2000
Dependent variable: TFP growth
ICT contribution
0.18
0.26
(0.14)
(0.20)
TFP level
-0.02
(-1.04)
1995-2000
Dependent variable: Non-ICT TFP growth
ICT contribution
-0.14
-0.10
(-0.16)
(-0.11)
TFP level
-0.01
(-1.01)
2000-2004
4.79
(2.08)
4.77
(2.20)
-0.02
(-1.74)
2000-2004
3.91
(1.91)
3.88
(2.17)
-0.03
(-2.42)
Sectoral Decomposition
19
Services industries are key to faster productivity
growth in U.S. over Europe
4.0
Contribution of major industry group to labour
productivity growth of market economy, 1995-2003
3.5
Other industries &
reallocation
Business services
3.0
Securities trade
2.5
Banking
Retail trade
2.0
Wholesale trade
ICT production
1.5
1.0
0.5
0.0
1995-2000
-0.5
2000-2003
EU-15
1995-2000
2000-2003
U.S.
Contributions of service industries is low across
countries, except Sweden, UK, Greece and Ireland
Industry contributions to aggregate labour productivity growth, 2000-2003
Luxembourg
Italy
Portugal
Netherlands
Spain
Germany
Belgium
France
Denmark
Finland
Austria
UK
Sweden
Greece
Ireland
EU-15
US
-2.00
ICT production
0.00
Wholesale trade
2.00
Retail trade
4.00
Banking
Securities trade
6.00
Telecommunications
8.00
10.00
Other industries & reallocation
Europe’s productivity advantage in telecommunication
is gone but it remains mostly TFP driven
U.S.
Telecommunications
1995-2000
2000-2003
UK
1995-2000
1995-2000
Germany
2000-2003
1995-2000
France
Netherlands
2000-2003
1995-2000
2000-2003
2000-2003
-0.10
0.00
0.10
Labour quality contribution
0.20
ICT deepening contribution
0.30
0.40
Non-ICT deepening contribution
0.50
TFP growth
0.60
In retail trade US and UK show clear advantage over
Germany, France and Netherlands; IT capital is limited
U.S.
Retail trade
1995-2000
2000-2003
UK
1995-2000
1995-2000
Germany
2000-2003
1995-2000
France
Netherlands
2000-2003
1995-2000
2000-2003
2000-2003
-0.10
0.00
0.10
Labour quality contribution
0.20
ICT deepening contribution
0.30
0.40
Non-ICT deepening contribution
0.50
TFP growth
0.60
In business services, TFP growth in many European
countries is strongly negative; IT is a big part of growth
U.S.
Business services
1995-2000
2000-2003
UK
1995-2000
1995-2000
Germany
2000-2003
1995-2000
France
Netherlands
2000-2003
1995-2000
2000-2003
2000-2003
-0.60
-0.40
-0.20
Labour quality contribution
0.00
ICT deepening contribution
0.20
0.40
Non-ICT deepening contribution
0.60
TFP growth
0.80
U.S. shows acceleration of TFP growth in business
services, but no further acceleration elsewhere
5-year moving average of U.S. TFP growth
0.6
0.4
0.2
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
-0.2
-0.4
-0.6
Wholesale trade
Retail trade
Financial intermediation
Business services
2001
In Europe TFP growth in market services is slower and
shows no acceleration
5-year moving average of EU-4 TFP growth
0.6
0.4
0.2
0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
-0.2
-0.4
-0.6
Wholesale trade
Retail trade
Financial intermediation
Business services
2001
Have things changed since 2000?
 ICT capital deepening has slowed almost
everywhere to pre-1995 levels
 U.S. shows strong acceleration in TFP growth, with
a slowdown in most European countries
 There is some suggestive evidence that spillovers
from ICT use are impacting TFP growth …
 We need to look in services:

European communication sector remains strong on TFP

U.S. and UK retail are clearly ahead of rest of Europe

Business services is taking off in U.S.
 There are no signs that Europe is catching up on
U.S. in ICT use and related productivity
27
Policy Questions
 Is slow TFP the result of inadequate management
of intangible capital or inflexible product and
labour markets?
 Are innovation policies of much help to drive
innovation and productivity in many services?
 Are reform & competition policies sufficiently
focused on services?
 Is Europe sufficiently exploiting comparative
advantages across borders?
 Are issues concerning reform management in
Europe properly managed?
 Should we focus on the TFP slowdown or also on
causes for lack of capital deepening in non-ICT?28