Transcript Proposal for modeling the Digital Economy - IPTS

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Building capacity to analyse policy impact
in Digital Economy
Prepared by Wojtek Szewczyk and Geomina Turlea
for the IRIS meeting, IPTS, 7-8 June 2010
Objectives of this presentation:
-Propose a conceptual framework to analyse Digital Economy
-Introduce Computable General Equilibrium (CGE) class of models
as an appropriate modelling platform
-Provide an illustrative example of integrating a DE feature into a
CGE model
What, How and Why ?
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1995
2005
2010
2015
Increasingly Digital Economy
ICT induced effects
MODELS OF
ECONOMY
PRE 2000
DE Characteristics
MODEL OF
(INCREASINGLY) DIGITAL
ECONOMY
2000+
Why? – to quantitatively evaluate policies before their implementation,
using accurate representation (i.e. model) of the economy
DE Characteristics
-towards a model
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A theoretical framework, in order to account for the essential features of
the Digital Economy, needs to embrace the following concepts:
•
•
•
•
Enabling technology
Network effects
Imperfect competition
ICT sector
Such a framework can serve as a platform for analysing contributions of
the Digital Agenda on Europe2020 goals.
The purpose of the modelling exercise is to quantify some of these
contributions.
Quantifying contributions of
Digital Agenda onEurope2020 goals
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Economic performance measures
e.g. Europe 2020 goals (employment↑,
investment in R&D↑, pollution↓, educational
attainment↑, poverty↓)
DIGITAL ECONOMY
related theory
Problem:
No relevant
ICT theory in
the model
Proposed policy
e.g. Digital Agenda
-Fast Internet
access
-Single Digital
Market
-Interoperability and
standards
-Digital literacy,
trust, security
-ICT R&D
-Societal challenges
From a concept to a model
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Computable General
Equilibrium (Model)
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 Equation-based, behavioral, macro-balancing
 General - includes explicit specifications of the behaviour of
several economic actors. The actors represented can be utility
maximizing households and profit maximizing firms as well as
optimizing governments, trade unions, capital creators, importers
and exporters
 Maintains market Equilibrium between demand and supply by
having an equation for each commodity’s and factor’s price,
representing market clearing and ensuring that total demand does
not exceed total supply
 Computable - produces numerical results.
CGE for DE – pros & cons
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Pros
•
•
•
•
economy-wide structure;
considerable level of detail on sectoral composition, endowment allocation,
production, final consumption and trade to trace the technology adoption;
capacity to absorb additional theory and data, to form a model capable of
accounting various new developments;
ability to calculate consumer and producer surpluses.
Cons
•
•
•
•
assumptions of perfect competition, market clearance and income balance;
agents’ macro-behaviour based on averaging microeconomic assumptions;
limitations in the availability of data for the needs of a model;
some of the phenomenon in the Digital Economy are characterised by
volatility and flexibility, beyond the apparent capability of a CGE model to
capture.
Example of including a
new characteristic into CGE
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Process:
• DE-related characteristic identification and description
• (new) Economic theory to express the characteristic
• Calibration:
• Data, estimation, analysis
• Integration into a CGE model
Characteristic:
DE and (ICT) productivity
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ICT acts as an enabling technology with capacity to affect
productivity of any business process within the
economy.
Additionally, ICT technology can be a subject to a network
effect (productivity of ICT resources increases sharply
as they reach a critical quantity).
Theory: DE and (ICT) productivity
(a simplified illustrative example)
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B’
TFPB’
TFPB
TFPA’
TFPA
B
A
A’
add 100
computers
IA
IA’
add 100
computers
IB
IB’
Calibration and Data
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•
•
•
•
TFP change –
TFP level –
Broadband stats –
HRST –
EU KLEMS
GGDC (Groningen Growth & Development Centre)
OECD
Eurostat
• TFP_Li=f(Bbpen, KICTinti, HRSTi)
bi exp  ci  gi (bi  ai )( f ( BB, KICTi , HRSTi ))   ai
TFP _ Li 
1  exp  ci  gi (bi  ai )( f ( BBi , KICTi , HRSTi )) 
Results-Financial Interm. sector
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TFP=f(BB, K-ICT, HRST)
2.0
Productivity
Level
1.5
ESP
AUT
2000-07 2000-07
1.0
0.5
Broadband Penetration
ICT Capital
HR Science & Technology
0.0
0.9
1.1
1.3
1.4
1.6
1.8
2.0
Selected results, graphed
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2.0
Fin. Interm.
Productivity
Level
TOT Mnfc
1.5
Agr, For,
Hun, Fis
1.0
EDU
TOT
0.5
Ele, Gas,
H2O supp
0.0
0.9
1.1
1.3
1.4
1.6
1.8
2.0
Broadband Penetration
ICT Capital
HR Science & Technology
Possible interpretation
of the results
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• Increase in broadband penetration by 10% in Spain will
lead to 0.43% increase in productivity in Financial
Intermediation sector, however
• The same increase in BB penetration would lead to
increase by only 0.23% in Education sector.
Integrate new theory into CGE
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• Add new data
(BB penetration, ICT capital, HRST, ...)
• Add new equations (new theory) which link, e.g. Bbpen,
K-ICT and HRST with a production function.
• Add new parameters to calibrate the new add-on.
• Then we could say more about impact on production,
employment, wage, trade, cross regional-effects,
impact on sectors not directly affected by a policy, etc.
Where do we stand today ?
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Thank you