the role of ict in economic growth of korea · 2009. 2. 2. · the role of ict in economic growth...
TRANSCRIPT
The Role of ICT
in Economic Growth of Korea:Productivity Changes across Industries since 1985
January, 29, 2009
Chang-Ho Yoon*, Kyoung-Youn Na** and Hyun-Joon Jung***
* Professor, Department of Economics, Korea University** Ph.D. student, Department of Economics, Korea University
*** Researcher, Korea Information Society Development Institute
The Role of ICT in Economic Growth of Korea
I. Introduction
II. Empirical Model and Estimation
III. Concluding Comments
The Role of ICT in Economic Growth of Korea
I. Introduction
• Information Technology and Productivity Growth in OECD countries (2003): Diverging patterns of ICT diffusion across countries and industries, and differential impact over time.
• Need to examine a case of ICT leading country where a sustained increase of productivity has been traced in ICT intensive industries.
• Recovery of Korea after financial turmoil in the late 1990s.
The Role of ICT in Economic Growth of Korea
• Since the financial turmoil, capital deepening in Korea has been relatively modest compared to the previous rapidly growing period. The annual rate of growth of net capital stock of the Korean economy over the period of 1970- 2005 was 10.8%, while 6.0% for 1998 – 2005. In the case of ICT sector, the rate was 41.2% for the period of 1984-1998, and then reduced to 3.4% for 1998 – 2005.
• The trend growth rate of Korea has been lowered after the crises with much less volatility until 2007.
The Role of ICT in Economic Growth of Korea
- Source : Bank of Korea
• Sources of GDP growth using best estimate and harmonized prices
- Source : Takahito Kanamori and Kazuyuki Motohashi (2007)
The Role of ICT in Economic Growth of Korea
• Decomposition of TFP Growth
- Source : Takahito Kanamori and Kazuyuki Motohashi (2007)
The Role of ICT in Economic Growth of Korea
The Role of ICT in Economic Growth of Korea
• Literature on growth enhancing effects of ICT: Jorgenson, D and K. Stiroh (1999, 2000), Stiroh, K. (2002), Jorgenson, D and Motohashi, K (2005), Kanamori, T and Motohashi, K (2008)
• Suspicious perspective on the New Economy: Gordon (2000)
• Roller and Waverman (2001) on the positive role of ICT infrastructure in economic growth.
The Role of ICT in Economic Growth of Korea
II. Empirical Model and Estimation
Methodological comments on previous research
(1) Technology specification– Suppose the economy is divided into ICT producing
sector and using sector. Then ICT capital stock of ICT producing sector often becomes the ICT infrastructure of the whole economy and complementary to ICT capital of ICT using sector (e.g. fixed and wireless networks, R&D facilities)
– The effects of ICT on productivity of ICT using industry can be underestimated if focusing on ICT capital of that industry alone.
• The Ratio of ICT capital stock (OECD 2002 classification)
0.1
.2.3
.4
1985 1990 1995 2000 2005year
ICT_MAN ICT_SERICT
- Source : EU KLEMS
The Role of ICT in Economic Growth of Korea
The Role of ICT in Economic Growth of Korea
(2) OECD ICT sector definition- capital measurement
– OECD ICT sector definition(2007): “The production (goods and services) of a candidate industry must primarily be intended to fulfill or enable the function of information processing and communication by electronic means, including transmission and display.”
– New ICT definition exclude the sentence that “Industries producing products (technologies) that use electronic processing to detect, measure, record or control a physical process.”
• ICT Convergence sectors use more and more ICT intermediate inputs or ICT capital which are not classified as ICT.
– Motor vehicle is a good example. – The components of Motor vehicle such as ECU, sensors
and embedded SWare not classified as ICT.– ECU or sensors uses electronic processing to detect,
measure, record or control a physical process (sensing, computing and communicating).
The Role of ICT in Economic Growth of Korea
(3) Inter-industry spill-over effects
– In many competitive or oligopoly industries, an investment game in ICT often results in cost and price reduction, and wealth redistribution from firms to consumers. Gain in consumer surplus boosts consumption in other industries.
– Due to heavy development cost and low marginal cost of ICT equipment and software, strong network effects prevail among the users across industries (e.g. software for internet security).
The Role of ICT in Economic Growth of Korea
- Source: EU KLEMS
Industrial Classifications
The Role of ICT in Economic Growth of Korea
The Role of ICT in Economic Growth of Korea
Estimation of spill-over effects
• We consider aggregate production function
• is aggregate ICT capital stock at t.
• Let denote the proportion of ICT capital stock of industry i at t.
• Then
),,,( tICKKLfY tititit =
tICK
itθ
∑=i
ititt KICK θ
1. Standard Cobb-Douglas Function
2. Other specification to emphasize the dependency of industry spill-over on
γβαtititiititiiit ICKKLtBKLtAFY )(),),(( ==
γγ θ )(∑=i
ititt KICK
0,, >γβα
The Role of ICT in Economic Growth of Korea
itθ
ittititiit ICKKLtBY θγβα ⋅= )(
• Specification for industrial value added. All the variables are in natural logarithms.
• Both and are determined endogenously within the system (depend on current and lagged output levels as well as technology shocks)
)( itititickitkitnit mickkny +++++= νηβββ
ittiit ev += −1,αν1|| <α
)0(~, MAme itit
The Role of ICT in Economic Growth of Korea
n k
• Dynamic representation(1)
(2)
• In either case we can obtain consistent estimates of the unrestricted parameter vector using the GMM methods.
)( 1*11,17116151,14131,1211 itititttiittiitit wyickickkknny ++++++++= −−−− ηπππππππ
)( 2*21,27126251,24231,2221 itititittittiittiitit wyickickkknny +++⋅+⋅++++= −−−− ηπθπθπππππ
),,,,,,( 7654321 ππππππππ =
The Role of ICT in Economic Growth of Korea
Variables Definition
GO Gross output at current basic prices (million won)
VA Gross value added at current basic prices (million won)
GO_P Gross output, price indices, 1995 = 100
VA_P Gross value added, price indices, 1995 = 100
L Total hours worked by employees (millions)
KICT ICT assets, Real fixed capital stock, 1995 prices
K All assets, Real fixed capital stock, 1995 prices
LAB Labor compensation (million won)
CAP Capital compensation (million won)
TFP TFP (value added based) growth, 1995=100
Data
- Source : EU KLEMS
The Role of ICT in Economic Growth of Korea
• Descriptive Statistics
Variable Obs Mean Std. Dev. Min Max
(ln level)
VA 630 15.862 1.011 13.098 18.347
n 630 6.449 1.106 3.341 8.271
k 630 16.655 1.366 13.359 20.150
ick 630 17.015 0.772 15.658 18.060
Learning 630 18.996 1.064 15.676 21.406
rTFP 600 0.033 0.074 -0.243 0.372
rGO 600 0.073 0.097 -0.459 0.942
rick 600 0.120 0.043 0.039 0.185
630 0.039 0.055 0.001 0.339
The Role of ICT in Economic Growth of Korea
θ
Estimation of production function
The Role of ICT in Economic Growth of Korea
• Production Function Estimation Result (conti…)
*, ** and *** denote significance of the test statistic at the 10, 5 and 1% level of significance, respectively.
The Role of ICT in Economic Growth of Korea
• rTFP Regressions
• is TFP of industry i in year t.
• is Gross Output of industry i in year t.
• is cumulative Gross Output of industry from year t-5 to year t-1.
• is ICT capital stock of all industries in year t.
itA
itGO
itLearning
ittititit ICKdLearningGOdAd εδγβα ++++= lnlnlnln
tICK
The Role of ICT in Economic Growth of Korea
• rTFP Regressions Result
*, ** and *** denote significance of the test statistic at the 10, 5 and 1% level of significance, respectively.
The Role of ICT in Economic Growth of Korea
• Dummy Variable rTFP Regressions
(1)
• if , otherwise.
• if ICT using industry, if ICT producing industry.
ittitit ICKdGOdCDAd εφδγβα +++++= lnlnln
1=D 1998≤t 0=D
1=C
0=C
The Role of ICT in Economic Growth of Korea
• Dummy Variable rTFP Regressions Result
*, ** and *** denote significance of the test statistic at the 10, 5 and 1% level of significance, respectively.
The Role of ICT in Economic Growth of Korea
• Continuous ICT Variable rTFP Regressions
(2)
(3)
ittittit ICKdGOdICKdDAd 11111 lnlnlnln εφδβα +++⋅+=
itittitittit ICKdGOdCICKdDAd 2122122 lnlnlnln εθλφδθγβα ++++⋅+⋅+=
The Role of ICT in Economic Growth of Korea
• Continuous ICT Variable rTFP Regressions Result
*, ** and *** denote significance of the test statistic at the 10, 5 and 1% level of significance, respectively.
The Role of ICT in Economic Growth of Korea
• Aggregate TFP growth rate
– Source : EU KLEMS
-.04
-.02
0.0
2.0
4.0
6to
tal_
r_T
FP
1985 1990 1995 2000 2005year
The Role of ICT in Economic Growth of Korea
• ICT producing industries
13 ELECTRICAL AND OPTICAL EQUIPMENT
23 POST AND TELECOMMUNICATIONS
id = 13
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.1076 0.0847
id = 23
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.1190 0.0576
The Role of ICT in Economic Growth of Korea
• ICT producing industries
– ICT producing industries (both manufacturing and service) show consistently higher productivity growth. During the financial crisis, still positive growth.
-.4
-.2
0.2
.4
1985 1990 1995 2000 20051985 1990 1995 2000 2005
1 3 2 3
indus_r_TFP total_r_TFP
year
G rap h s b y id
The Role of ICT in Economic Growth of Korea
• ICT intensive industries– The proportion of ICT capital( ) is greater than the
average proportion of all the industries. The status can change over time.
• Among the industries which use ICT intensively, select industries with TFP growth rate persistently higher than economy wide growth rate since 2002.
θ
8 Chemicals and chemical
12 MACHINERY, NEC
14 TRANSPORT EQUIPMENT
The Role of ICT in Economic Growth of Korea
• ICT intensive industries (code 8, 12, 14)
id = 8
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.0524 0.0453
id = 12
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.0745 0.1079
id = 14
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.0648 0.0870
The Role of ICT in Economic Growth of Korea
• ICT intensive industries
– Among ICT intensive industries, industries 12 and 14 show high volatility.
The Role of ICT in Economic Growth of Korea
-.4
-.2
0.2
.4
1985 1990 1995 2000 20051985 1990 1995 2000 2005
1 2 1 4
indus_r_T F P total_r_TF P
year
G rap h s b y id
• ICT intensive industries (conti…)
– Industry 8 shows consistently higher productivity growth with small volatility.
-.4
-.2
0.2
.4
1985 1990 1995 2000 2005
8
indus_r_TFP total_r_TFP
year
Graphs by id
The Role of ICT in Economic Growth of Korea
• ICT intensive service industry
24 FINANCIAL INTERMEDIATION
id = 24
Variable Obs Mean Std. Dev.
indus_rTFP 20 0.0447 0.0995
The Role of ICT in Economic Growth of Korea
• 23 Post and Telecommunications • 24 Financial Intermediation
-.4
-.2
0.2
.4
1985 1990 1995 2000 20051985 1990 1995 2000 2005
23 24
indus_r_TFP total_r_TFP
year
G raph s by id
The Role of ICT in Economic Growth of Korea
• Service industries with increasing ICT intensity since mid 1990s
18 Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel
19 Wholesale trade and commission trade, except of motor vehicles and motorcycles
20 Retail trade, except of motor vehicles and motorcycles; repair of household goods
The Role of ICT in Economic Growth of Korea
• Right axis =share
– ICT intensity rises and then declines recently. Better performance recently.
.015
.02
.025
.03
.015
.02
.025
.03
.015
.02
.025
.03
-.05
0.0
5.1
-.1
0.1
.2
-.1
0.1
1998 2000 2002 2004 2006
1998 2000 2002 2004 2006
18 19
20
indus_rTFP total_r_TFPshare
year
Graphs by id
θ
The Role of ICT in Economic Growth of Korea
• Export ratio of ICT using industry and producing industry
– Source : Bank of Korea
The Role of ICT in Economic Growth of Korea
.2.2
5.3
.35
.4
1990 1995 2000 2005 2010year
ex_ratio_ICT_high ex_ratio_ICT_pro
• Export volume indices (1995=100)
5010
015
020
0
1990 1995 2000 2005 2010year
ex_vol_ICT_high ex_vol_ICT_proex_vol_sum
- Source : Bank of Korea
The Role of ICT in Economic Growth of Korea
The Role of ICT in Economic Growth of Korea
III. Concluding Comments
• In contrast to previous research, ICT has strong effects on the productivity of ICT using export industries (notwithstanding ICT producing industries).
• Dynamic comparative advantage has been revealed toward the ICT using export industries which have managed to adopt convergent technologies. However from the 4th quarter of 2008, exports began to decline rapidly.
• Does technology convergence extend to other promising industries?
References
• Bailey, Martin N. and Robert Lawrence (2001), “Do We Have a New E-Conomy?”, NBER Working Paper 8243.
• Basu, Susanto, Fernald, John G., Oulton , Nicholas and Srinivasan , Sylaja (2003), “The Case of the Missing Productivity Growth: Or, Does Information Technology Explain why Productivity Accelerated in the US but not the UK?”, NBER Working Paper, No. W10010.
• Blundell R.W. and S.R. Bond (2000), “GMM Estimation with Persistent Panel Data: An Application to Production Functions”, Econometric Reviews, 19, pp.321-340.
• Daveri, Francesco (2003), “Information Technology and Productivity Growth Across Countries and Sectors”, IGIER Working Paper, No. 227
• Dewan, S., Kraemer, K. L. (2000), “Information technology and productivity: evidence from country-level data.”, Management Science, 46, pp.548-562.
• Gordon, Robert J. (2000), "Does the “New Economy” Measure up to the Great Inventions of the Past?”, Journal of Economic Perspectives, Vol. 14, pp.49-74.
• Greene, W.H. (2002), Econometric Analysis, 5th ed. Upper Saddle River, NJ: Prentice-Hall.
• Hausman J. A, (1978), “Specification tests in econometrics”, Econometrica, 46, pp.1251-1271.
References
• Il Houng Lee and Yougesh Khatri (2003), “IT and Productivity Growth in Asia”, IMF working paper WP/03/15.
• Jorgenson, Dale W. and Kevin J. Stiroh(2000), “Raising the Speed Limit: U. S. Economic Growth in the Information Age”, Brookings Papers on Economic Activity.
• Jorgenson , Dale W. (2001), “Information Technology and the U.S. Economy”, Harvard Institute of Economic Research Paper, No. 1911.
• Kevin J. Stiroh (2001), “Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?”, Federal Reserve Bank of New York.
• _____________ (2002), “Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?”, The American Economic Review, Vol. 92, No. 5, pp.1559-1576.
• Ki-Dong Lee (2001), “An Analysis on the Productivity Effects of the Information and Communication Technology Investment in Korean Industries”, Kukje Kyungje Yongu, Vol.7, No.2. (in Korean)
• KwanHo Shin, YoungSoo Lee and JongWha Lee (2004), “Productivity Growth in Information Communication Technology Industries and Their Impacts on Other Industries”, KukjeKyungje Yongu, Vol.10, No.2. (in Korean)
References
• Lars-Hendrik Roller and Leonard Waverman (2001), "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach" , The American Economic Review, Vol. 91, No. 4, pp. 909-923.
• Marcel Timmer, Ton van Moergastel and Edwin Stuivenwold et al. (2007) “EU KLEMS Growth and Productivity Account”, Version 1.0, PART I Methodology.
• Oliner, Stephen D. and Sichel, Daniel E. (1994), “Computers and Output Growth Revisited: How Big Is the Puzzle?,”Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25, pp.273-334.
• ________________ (2000), “The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?”, FEDS Working Paper, No. 2000-20.
• ________________ (2003), “Information technology and productivity: where are we now and where are we going?”, Journal of Policy Modeling, Vol. 25, Issue 5, Special Silver Anniversary Issue, The New Economy and Growth, pp.477-503.
• Sargan, J. (1958), “The estimation of economic relationships using instrumental variables”, Econometrica, 26(3), pp.393–415.
• Takahito Kanamori and Kazuyuki Motohashi (2007), “Information Technology and Economic Growth: Comparison between Japan and Korea”, RIETI Discussion Paper Series, 07-E-009.
Thank You