Infrastructures and ICT.

1
Infrastructures and ICT. Measurement Issues and
Impact on Economic Growth Matilde
Mas Universitat de València Ivie OECD
Workshop on Productivity Analysis and
Measurement Bern, 16-18 October 2006
2
OBJECTIVE OF THE PAPER

• The measurement of the impact of ICT and
  Infrastructures on Economic Growth
• Using a growth accounting framework
• Previous step address the measurement problem
  posed by the presence of publicly owned assets
  (such as infrastructures)
• Illustration Spain as an example

3
TWO POINTS OF DEPARTURE

• The Infrastructures debate of the late eighties
  and early nineties. A growth and convergence
  debate
• The ICT revolution of the late nineties and the
  beginning of the new century

4
TWO POINTS OF DEPARTURE

• Infrastructures
• Responsible of the US productivity slowdown of
  the 70s and 80s
• Engine of growth in the European countries
• Factor lying behind the lack of convergence of
  per capita income (as in the case of the Spanish
  regions and provinces)
• ICT capital (production and use) as source of
• US productivity upsurge
• EU (including Spain) poor productivity
  performance

5

• INFRASTRUCTURES
• MEASUREMENT ISSUES

6
INFRASTRUCTURES MEASUREMENT ISSUES

• Infrastructures are mainly provided by the public
  sector.
• National Accounts do not assign a net return to
  the flow of services provided by public capital.
• The only recognized flow is public fixed capital
  consumption

7
INFRASTRUCTURES MEASUREMENT ISSUES

• Implications
• NA Gross Operating Surplus figures are
  underestimated because the value of the capital
  services provided by public capital is not fully
  considered.
• Consequently, the value of output is also
  underestimated in NA figures, afecting both its
  level and rate of growth

8
INFRASTRUCTURES MEASUREMENT ISSUES

• If the standard (endogenous) approach is used
  when computing the rate of return, 1 2 will
  have consequences on
• the user cost
• the input shares
• the growth accounting results

9
INFRASTRUCTURES MEASUREMENT ISSUES

• According to NA practices
• GOS GOS (private)Public Capital Consumption
• From an analytical perspective
• GOS (private) Value of private capital
  services

10
INFRASTRUCTURES MEASUREMENT ISSUES

• Standard computation of the internal rate of
  return
• An Alternative Revised computation (referring
  only to the private sector)

11
INFRASTRUCTURES MEASUREMENT ISSUES

• Applying Nordhaus (2004) basic principle for
  measuring non-market activities
• Non-market goods and services should be treated
  as if they were produced and consumed as market
  activitiesthe prices of non-market goods and
  services should be imputed on the basis of the
  comparable market goods and services

12
INFRASTRUCTURES MEASUREMENT ISSUES

• Revised Gross Operating Surplus (including the
  value of public capital services)
• Revised Nominal Value Added (including the value
  of public capital services)

13
INFRASTRUCTURES MEASUREMENT ISSUES

• Capital shares Standard Approach
• Capital shares Revised Approach

14

• THE DATA

15
THE SPANISH DATA

• GFCF available for
• 18 assets, of which
• 3 ICT assets (hardware, software, communication)
• 6 types of infrastructures (roads, railways,
  airports, ports, water urban infrastructures)
• And 43 branches of activity, of which
• 15 manufactures
• 23 services

16
Treatment of Infrastructures in Spanish Capital
Stockestimates. An illustration

• Recording of year t investment in infrastructures

17

• IMPLICATIONS OF THE TWO APPROACHES
• Spain as an example

18
IMPLICATIONS OF THE TWO APPROACHES

• On GVA and GOS levels

19
IMPLICATIONS OF THE TWO APPROACHES

• On GVA rate of growth

20
IMPLICATIONS OF THE TWO APPROACHES

• On capital rate of growth

21
IMPLICATIONS OF THE TWO APPROACHES

• On capital output shares

22

• ICT AND INFRASTRUCTURES
• Results from a growth
• accounting perspective

23
ICT and Infrastructures. Results
24
ICT and Infrastructures. Results
25
ICT and Infrastructures. Results
26

• SUMMARY AND CONCLUDING REMARKS

27
SUMMARY AND CONCLUDING REMARKS

• 1. ON MEASUREMENT PROBLEMS
• The paper identifies a methodological problem in
  the growth accounting framework arising from the
  way public assets are treated by National
  Accounts.
• It proposes an alternative approach to
  computation of the internal rate of return.
• The standard (endogenous) approach, does not take
  into account the full value of the capital
  services provided by publicly owned goods.
• In contrast, the revised approach proposed here
  computes the internal rate of return for the
  private sector of the economy.
• And, following Nordhaus principle, it is used to
  estimate the value of the capital services
  provided by public capital.

28
SUMMARY AND CONCLUDING REMARKS

• 1. ON MEASUREMENT PROBLEMS
• Implications (taking Spanish data as reference)
• GVA figures provided by NA are underestimated by
  5-6 and Gross Operating Surplus by aprox. 15.
• The share of capital services on total output is
  around 3.5 percentage points higher when the
  value of public capital services is fully
  included (as proposed by the revised approach)
• However, the growth rates of both, GVA and the
  Volume Index of Capital Services are not
  significantly affected.

29
SUMMARY AND CONCLUDING REMARKS

• 1. ON MEASUREMENT PROBLEMS
• Implications (taking Spanish data as reference)
• Neither ICT capital services share on total
  output nor the aggregate rate of growth of these
  types of assets are practically affected by the
  use of any of the two approaches.
• As a consequence, the contribution of ICT assets
  to the growth rate of labor productivity does not
  seem to depend on the chosen methodology.
• However, the contribution of total capital and
  TFP is (though modestly) affected.

30
SUMMARY AND CONCLUDING REMARKS

• 2. ICT and Infrastructures impact on growth
• The impact of an asset on the rate of economic
  growth depends on two factors its share on total
  output and its own rate of growth.
• On the shares
• The share of ICT capital services on total
  output has been slightly lower (around 0.04) than
  that of infrastructures (around 0.05-0.06).
• Under certain assumptions (CRS, perfect
  competition, optimizing behavior) these shares
  measure the output elasticities of the assets.
• Concerning ICT assets, the highest elasticity
  corresponds to communication and the lowest to
  hardware, while software is the ICT asset showing
  the strongest elasticity increase.

31
SUMMARY AND CONCLUDING REMARKS

• 2. ICT and Infrastructures impact on growth
• On the shares
• The figures for infrastructures elasticities are
  close to the ones previously obtained for Spain
  from an econometric estimation of a production
  function.
• Thus, the figures for infrastructures reconcile
  the results obtained from two alternative
  strategies, econometric estimation and growth
  accounting.
• However, it also contradicts a previous result
  for Spain here the infrastructures elasticity
  was rather stable along the period while previous
  (econometric) results indicated a continuous
  reduction.

32
SUMMARY AND CONCLUDING REMARKS

• 2. ICT and Infrastructures impact on growth
• On the growth rates
• The rate of growth of total (non residential)
  capital has been rather strong in Spain (4.5 on
  average)
• ICT accumulation was even stronger (11) in
  1995-2004 although it decelerated to 7.5 in
  2000-2004
• Infrastructures rate of growth was less than a
  third of ICTs between 1995-2000, but more than a
  half in 2000-2004.

33
SUMMARY AND CONCLUDING REMARKS

• 2. ICT and Infrastructures impact on growth
• As a combination of the two effects
• The contribution of ICT capital has been notable
  higher than that of Infrastructures.
• Office machinery showed the highest contribution,
  and software the lowest one
• Infrastructures contribution was negative in
  1995-2000 but it accelerated in 2000-2004.
• ICT showed the opposite behavior, decelerating in
  the second subperiod.