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Dr. Catherine L. Mann Barbara ’54 and Richard M. Rosenberg Professor of Global Finance International Business School, Brandeis University Ascent After Decline: Re-Growing Economic Growth Workshop, November 19, 2010 World Bank. Information Technology, Globalization, and Growth : - PowerPoint PPT Presentation
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Dr. Catherine L. MannBarbara ’54 and Richard M. Rosenberg Professor of Global Finance
International Business School, Brandeis University
Ascent After Decline: Re-Growing Economic GrowthWorkshop, November 19, 2010 World Bank
Information Technology, Globalization, and Growth:
Production Economies of Scale or Trade in Variety Benefits
Three Factors Relate ICT and Growth
Production of ICT: Gains from TFP and Economies of Scale
Consumption/Use of ICT: Gains from Use of Variety
International Trade in ICT Gains from Import via Terms of Trade
What is the Relative Importance for Growth?
Production, Use, Trade in ICT
*Terms of Trade: Prices of exports/prices of imports
Domestic Focus Trade Focus
ICT sector must keep growing as a share of
the economy to continue the gains
Capital-intensive production; job gains slow
Export ICT to keep gains from EOS and TFP?
Falling ICT prices means terms of trade (TOT)* move against the ICT exporter
[Mann (2006, Fig 2.4]
Evidence: Gains from Production and EOS
Total Factor Productivity (TFP) in ICT
TFP in ICT industries is higher than rest of economy
~ 8 % in ICT-producing vs. ~ 3% in ICT-using (1979-02) [ Van Ark (2005)]
Economies of Scale (EOS) in ICT production
ICT EOS accounts for 30% of US ICT TFP
(1978-99) [Chun and Nadiri (2008)]
Evidence: Gains from Import and Use
Terms of trade favor the ICT importer
Falling ICT prices => 0.3pp increase in US TFP (92-99) [Mann (2003)]
TFP increases more for ICT-using industriesTFP in ICT-using industries increases 250% vs. only 30% in ICT-producing (79-95 vs. 95-02). [Van Ark (2005)]
Evidence: Gains from Trade and Variety
Export variety increases TFP
Accounts for 40% of the difference in TFP across countries
Mostly due to variety in electronics [Feenstra and Kee (2007)]
Import variety increases TFPAccounts for 25% of TFP growth of developing countries [Broda, Greenfield, Weinstein (2006)]
Net Imports of IT ------------------ Net Exports of IT
Net Imports
Gain ~ TOT effect
Eco
no
mic
Gro
wth
(m
easu
red
usi
ng
so
cial
su
rplu
s)
Net ExportsLoss ~ TOT effect
ICT, Trade, and Growth: No variety
Net Imports of IT ------------------ Net Exports of IT
Eco
no
mic
Gro
wth
(m
easu
red
usi
ng
so
cial
su
rplu
s)
Net Import
High Variety; Domestic useAccentuates TOT Gain
Net Export
Low Variety: Economies of ScaleIn export productionOffset TOT loss
Net Export
High VarietyOffset TOT loss
Net Import
Low Variety: Supply Chain In imported intermediates to export supply chain
ICT, Trade, and Growth: Add variety
PriceIT
Direct DemandIT
E0/P0E1/P1
P0
P1
AB
Social Surplus (A+B+C) is larger with Higher income elasticity of demand for IT () Higher price elasticity of demand for IT () Bigger fall in PriceIT Larger Real GDP More IT intermediates and IT externalities
C
Total DemandIT
Take to the Data: Social Savings
Social Savings by CountryElasticities from Bayoumi and Haacker
(time and country effects)
β (price elasticity) = -1.31
(income elasticity) = 1.58
Real IT prices, Country-specific (current data 1999-2006)IT prices from BLS => assumes global market IT prices
Country GDP deflator => country-specific relative price IT
Take to the Data: Social Savings
Trade in IT by country (2003–2006)Production less expenditure
Real IT expenditure, Country-SpecificReed Electronics
Real Production, country-specific WITSA
Take to the Data: Trade in IT
Take to the Data: Variety in Trade of IT
Herfindahl indexes of variety in trade
H* k j = ((S (i=1 to N) s2 i k) - (1/N k))/(1- 1/N k)
Country j; , Sik is the share of product (i) in total imports/exports of the ‘product
group’ (k) and Nk is the total number of products in the ‘product group’ (k).
Market segments (k) correspond to the OECD semi-aggregates of
telecommunications, computer and related equipment, electronic components,
audio and visual equipment, other ICT goods (medical devices, GPS,
instruments…)
Product (i) = 178 product classes, 6-digit HS from COMTRADE Country (j) = 45 countriesSegment (k) = 5
Source: Mann (2010)Net IT Trade: (IT Production-expenditure) %GDP
Eco
no
mic
Wel
l-b
ein
g S
ocia
l Sav
ing
(%G
DP)
hypothesis
data
Take to the Data
On averagenet IT imports
strongly related to Economic
Well-being
BUT
Dispersion of countries
around trend
Can Varietyhelp explain?
Take to the Data: Net Importers
On averagenet IT exportsNOT related to Economic
Well-being
AND
Huge Dispersion of country experience
Can Varietyhelp explain?
Take to the Data: Net Exporters
Tallest Export Bars: EOS Gains but negative TOTShortest Import and Export Bars: Variety Gains, TOT Gains
Concentrated net exporter, lower
well-being
Variety net Importer and net exporter,
Highest Well-being
Concentrated net importer, medium
Well-being
Variety and Country Experience
Conclusions
1) Net Importers gain more than net exporters of IT On average, terms of trade dominate
2) But, many net exporters do gain Imported intermediates in an IT supply chain
3) Variety of imports and exports explain country deviation from average Lower growth more concentrated exports, imports
Higher GDP/per capita higher variety imports
ICT Strategies To Maximize Growth
1) Start as part of a supply chain: Countries without global engagement in IT have worst growth
2) But, exporting only, gives up potential gains from ICT Loss on Terms of Trade and lack of variety imports
3) Maximize TFP and growth with Domestic production for export
High variety imports for highest
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