Free DP Download 15 August 2019 - COMMUNICATIONS TECHNOLOGY GIVES A BIG BOOST TO PRODUCTIVITY GROWTH: Evidence from the United States and the European Union

Thursday, August 15, 2019

Harald Edquist, Peter Goodridge and Jonathan Haskel 
CEPR DP No. 13910 06 August 2019

Did the huge investment in telecommunications networks in the 1990s affect subsequent total factor productivity (TFP)? A new study by Harald Edquist, Peter Goodridge and Jonathan Haskel finds evidence of a significant correlation between growth in the contribution of telecoms capital services and TFP, which is consistent with the presence of network effects or ‘spillovers’.  

The study estimates that spillovers from communications technology potentially explain: around a third of TFP growth in North European economies; two-thirds in Scandinavian economies; and around nine-tenths in the United States. The study also estimates that the total social rate of return to communications technology capital is around five times its private rate of return. Estimates further suggest that a slowdown in communications technology capital accumulation ’explains’ only 9% of the TFP slowdown prior to the 2008 economic crisis in the EU and 54% in the United States.

Table 5: Economic significance: contribution of CT capital services, 1990, 2007, by country 

Notes: Column 1: Countries included. Column 2: Mean TFP growth. Column 3: Mean contribution of CT capital services. Column 4: Contribution of CT network externalities to growth. Column 5: Percentage of TFP explained by CT spillover. 

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