1 The Impacts of ICT Development on the Digitizing Economy of Taiwan by Chou Ji Peng Su-Ling Adviser : Prof. L.Klein May 2006

2 Contents Chapter 1 Introduction Chapter 2 Literature Review Chapter 3 The Contribution of ICT to the APEC Economies Chapter 4 Empirical Results and Analysis Chapter 5 Policies for ICT Development Chapter 6 Conclusions

3 Chapter 1. The Research Purposes and Framework 1. Research Purposes (1)Compare the development of ICT and related policies (2)Capture the revolution and impacts of ICT

4 2. Research Framework 1. Review related studies 2. Set up theoretical framework 3. Collect and mine ICT data in APEC Empirical Models 1. to discuss the relationship between the ICT development and economic growth (productivity) 2. to evaluate the side effects from the development of ICT 3. to compare the differences in various APEC empirical studies 4. to analyze the possible reasons and policies

5 Chapter 2. Literature Review -- ICT development and Productivity Information Productivity Paradox (IPP) R. Solow(1987) “ You can see computer age everywhere these days, except in the productivity statistics. ” Kraemer and Dedrick(1994) offered the explanations as: (1) measurement errors; (2) time lag for diffusion; (3) management of IT; (4) redistribution

6 Chapter 2. Literature Review -- ICT development and Productivity Kraemer and Dedricks (1994) Jorgenson and Stiroh (1999) Klein, Duggal and Saltzman(2000) Klein and Yuzo Kumasaka(2000) Miyagawa, Ito and Harada (2002) Peng, et. al.(2002)

7 Chapter 3 The Contribution of ICT to the APEC Economies a. The average growth rate of real GDP among the APEC is 3.67% in the period of b. The average investment ratio is 28.21%. c. The employment growth rate is 1.74%

8 Chapter 3 The Contribution of ICT to the APEC Economies Although most economies with high investment- output ratio and the high labor growth rate enjoyed high economic growth rate in APEC environment, some less than 25% of their GDP on investment Canada (20.7%), New Zealand (21.1%), Peru (24%), Taiwan (22.76%), United States (19.5%), Russia (22.8%), Papua New Guinea (21.1%)

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11 Table 3.3 The share of ICT in GDP Electronic equipmentCommunication ICT Australia Canada Chile China Hong Kong, China Indonesia Japan Korea, Rep Malaysia Mexico New Zealand Peru Philippines Singapore Taiwan Thailand United States Vietnam Russian Federation Average

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13 Chapter 4 Empirical Results and Analysis 1. Growth Accounting 2. Inter-Sector Externality Test 3. Principle Component Analysis

Growth Accounting

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17 The results show that the contribution accounts for almost 30 per cent of the economic growth rate. The TFP contribution to productivity in the ICT industries was significantly greater in the 1990s than in the 1980s. The greater part of the contribution made by TFP is derived from the intra-industry technological progress effect. The ICT industry has not stimulated any real technological progress in other industries. The contribution from the effects of input reallocation has also been very limited.

Inter-Sector Externa1ity Test, Feder (1983)

Inter-Sector Externa1ity Test, Table 4.4 Regression results of externality effects of ICT with APEC Explanatory VariablesCoefficientst-Statistics Constant I/Y = No. of observations = 15 Note: The dependent variable is:

Inter-Sector Externa1ity Test Table 4.5 Regression results of externality effects of ICT with 8 additional countries Explanatory VariablesCoefficientst-Statistics Constant I/Y = 0.522; No. of observations = 23

Principle Component Analysis

Principle Component Table 4.6 Principal components analysis results ComponentsPrin1Prin2Prin3Prin4Prin5 Eigenvalue Proportion Cumulative

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24 Figure4.2 The principal components analysis results of selected economies

25 If we ranking the APEC economies by the first component, we can find the USA is in the No.1 and Taiwan ranks No.6. Taiwan 's score is positive in component 1, 3, 5 and is negative in component 2, 4. We may conclude that the Taiwan is wealthful in general ICT development, and the treatment of science, but can be improved on the spirit of R&D and incentives for information and technology.

26 Chapter 5 Policies for ICT development ICT development involved not only innovation in computer-related products,but also a historic transformation of society. ICT development requires considerable backup in terms of infrastructure and regulations. The strategies and frameworks may differ significantly in different economics.

27 Chapter 5 Policies for ICT development For the ICT development policies, we reviewed the ICT related policies in United States, Canada, Australia, Japan, and Taiwan. Although the United States and Canada are both liberal states distinct from others, Canada puts some weights on universal accessing to information facilities, and is unavoidably transformed into a bureaucratic problem to be managed.

28 Chapter 5 Policies for ICT development Australian realizes the importance of ICT industries, and will not only be the user of ICT but also the producer of ICT. The second phase for e-Japan strategy is expected to establish “ vibrant, safe, impressive and convenient ” society, and to utilize IT infrastructure for aggressive transformation of Japanese socio-economic systems. Taiwan ’ s knowledge based plan is expected to incorporate with the social justice and the sustainable environment to transform Taiwan into a “ Green Silicon Island ”.

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30 Chapter 6 Conclusions (1/3) It is clear that within the APEC economies, there are patterns of industrial specialization and national idiosyncrasies and that both the developments and influences of ICT are multi- dimensional. As we review the reference about the influence of ICT development to the productivity or competitiveness and the e-readiness ranking provided by several organizations. We find that stories of individual economies are compelling.

31 Chapter 6 Conclusions (2/3) When we use growth accounting in order to estimate the impact of the ICT sector on productivity, the results show that the increase in TFP has contributed significantly to economic growth in Taiwan, but the greater part of the contribution made by TFP is, however, derived from the intra-industry technological progress effect. There is no significant spillover effect from inter- industry technological progress. Thus, the ICT industry has not stimulated any real technological progress in other industries. The test of the inter-sector externality also support this finding, i.e., the externality from ICT shows a positive sign but not statistical significance.

32 Chapter 6 Conclusions (3/3) The policy implications from our empirical findings are that APEC economies might be too emphasized on the ICT development per se, the use of information and communication technology is still lagged behind. Therefore, how to utilize the ICT in the universal sense, and how to implement the digital dividend issues not only domestically for the rural areas, low income household, and disable people, but also internationally for the less developed economies.

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