1 Matilde Mas & Javier Quesada London, October 26/27th ICT and Economic Growth in Spain EUKLEMS Project, Issues for discussion

2 1.ICT and Economic Growth in Spain

3 ICT and Economic Growth in Spain STRUCTURE 1.Data: sources 2.ICT taxonomy of branches 3.Branch contribution to output, employment & labour productivity 4.Capital accumulation 5.Labour qualification 6.Growth accounting 7.Concluding remarks

4 ICT and Economic Growth in Spain AIM OF THE PAPER A growth accounting exercise at the industry level Estimates of the contribution to output & labour productivity of –Labour (hours) –Labour qualification (schooling) –Non-ICT capital –ICT capital –TFP, TFPR

5 1.- DATA SOURCES Output: –National Accounts GDP: –Excluded: »Rents from dwellings »Incomes from private households with employed persons Labour: –Nat. Acc.; OECD; Groningen Growth Development Center 60 Industry Database Hours worked: –(same # hours per worker by branch) –Instituto Nacional de Estadística (INE) Active Population Survey, Wage Structure Survey Qualification: –7 levels of schooling: »i) Illiterate; ii) Primary Education; iii) Secondary Ed. (1st level); iv) Secondary Ed. (2nd level); v) Professional Training; vi) Tertiary Ed. (1stlevel); vii) Tertiary Ed. (2nd level).

6 1.- DATA SOURCES Capital services: –New series estimated with the new methodology (OECD 2001) by BBVA Foundation/Ivie Assets: 18 types –3 ICT assets: »Hardware »Communications »Software Branches: reduced from 33 to 29 No data available on the ICT production sector We concentrate on ICT using sectors All rates computed using Törnqvist indexes

7 2.- ICT TAXONOMY Criteria: 1.Ratio: (ICT capital services)/(Total capital services) 2.Ratio: (ICT capital services)/(Labour) –Computed for the initial, final and interval average values of the period branches grouped into 4 broad clusters: 1.Non Market Sector (public sector): 3 br. 2.Other Non-intensive ICT users (non- manufacturing): 5 br. 3.Intensive ICT users (above average): 8 br. 4.Non-intensive ICT users (below average): 13 br.

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10 ICT TAXONOMY Characterization Intensive ICT users –31% of total value added; 23% of employment –Higher than average labour productivity levels Except: Business services, Private Health & Social Services, Other community, social & personal services –Growing weight Except: Electricity, gas & water supply; Electric, electronic & optic equipment, Financial Intermediation

11 CONTRIBUTION TO AGGREGATE OUTPUT, EMPLOYMENT & LABOUR PRODUCTIVITY

12 CONTRIBUTIONS TO AGGREGATE OUTPUT

13 CONTRIBUTIONS TO EMPLOYMENT

14 CONTRIBUTIONS TO LABOUR PRODUCTIVITY

15 CAPITAL ACCUMULATION Annual rate of non-residential capital accumulation : 5%. –ICT contribution: 44.2% Transports & communications: 18.8% a. r. ICT capital accumulation: 11.1% a.r. –ICT group: 66.7% share Transport & comm., and Financial Intermediation: 39% share Non-ICT capital accumulation: 3.9% a.r. –Driven by Non-Intensive ICT group ICT SECTOR: THE MOST ACTIVE ONE IN TOTAL & ICT CAPITAL ACCUMULATION

16 A SYNTHETIC INDEX OF LABOUR QUALIFICATION Based on the growth rates of employment in each of the 7 levels of education, weighted by their relative wages –Wages as indicators of marginal productivities of labour A rapid and continuous improvement of the index over the period

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21 GROWTH ACCOUNTING : meaningful period. Same sub-periods

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23 LABOUR PRODUCTIVITY CHANGE

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26 GROWTH ACCOUNTING RESULTS ( ) Intensive-ICT group: –the most active one in raising output & productivity (excluding agriculture) –highest ICT-capital contribution to output growth Electric, electronic & optic equipment Transports & communications Financial intermediation –similar contribution to productivity growth of the 3 ICT assets –Highest contribution of the labour quality index Private health & social services Financial intermediation Business services Negative contribution of TFPR (excluding agriculture) –Intensive-ICT group: Electric, electronic & optic equipment: highest TFPR improvement

27 GROWTH ACCOUNTING LABOUR PRODUCTIVITY

28 BRANCH CONTRIBUTION TO OUTPUT ( )

29 CONCLUDING REMARKS 1.Full benefits of ICT using on TFP are not observable as yet in Spain 1.TFPR 1.(85-90) 1.09% (90-95) 0.38% (95-00) -0.03% (00-02) 0.04% 2.There is more positive evidence in raising output & labour productivity 2.There is a slow down of labour productivity in the second part of the 90s & a slight pick up in (85-90) 1.67% (90-95) 1.53% (95-00) 0.48% (00-02) 0.71% 3. Main engines of output growth (in different intensities): 1.(ICT & Non-ICT) capital accumulation 2.Employment 3.Labour qualification

30 CONCLUDING REMARKS 4. ( ) - Best records in output, employment, capital accumulation, TFPR improvements and labour qualification 5. ( ) - Crisis: Output growth reduced by 4 pp, destruction of employment, slow down of productivity gains & of TFPR improvements. 6. ( ) - Strong recovery. Main drivers: strong employment creation; strong labour qualification; slow pace of labour productivity gains (deceleration of Non-ICT capital accumulation and poor behaviour of TFPR) 7. ( ) - Continuous recovery. Slight productivity pick-up; slower employment growth; more gradual improvements in labour qualification. Strong ICT capital performance

31 CONCLUDING REMARKS 8. The evidence of a recent productivity pick-up is more likely when Non-market sector, Agriculture& fishing and Forestry sectors are excluded 9. Intensive ICT sectors are the most dynamic ones in terms of output, employment, capital deepening –ICT in particular- and labour qualification

32 2.EUKLEMS PROJECT ISSUES FOR DISCUSSION 1.METHODOLOGICAL 1.Rates of return: Endogenous vs Exogenous 2.Growth rates computation 2. STATISTICAL 1.Treatment of land in capital estimates (excluded in Spanish estimates) 2.II.2. Residential stock excluded for productivity analysis 1.Dwelling rents estimates 2.Income from households with employed persons 3.Disaggregation by schooling levels. (How many?)

RATES OF RETURN: EXOGENOUS VS. ENDOGENOUS A practical issue: How to deal with public goods like infrastructures? –According to the Nat. Acc., the contribution of Government Owned Assets to Aggregate Gross Operating Surplus is zero. –If one recognizes that some forms of public capital –like infrastructures- contribute positively to output generation, the NA output figures should be augmented according to the capital services they provide. Question: How to value public capital services? A tentative answer: Use the exogenous approach Advantage: no need to assume competitive markets or Constant Returns to Scale Growth accounting implementation :use the cost version instead of the income version. Accordingly,

RATES OF RETURN: EXOGENOUS VS. ENDOGENOUS Cost approach to labour productivity measure

RATES OF RETURN: EXOGENOUS VS. ENDOGENOUS Choosing exogenous rates In most cases, Public Capital is included in the Other Constructions item (without an explicit mention) Thus, the usual endogenous rate computation includes Public Capital on the input side, but excludes its contribution from the income side. Consequently, is the endogenous rate underestimated? Question: How to deal with capital services as provided by Government Assets when the endogenous approach is adopted?

GROWTH RATES COMPUTATION It is commonly accepted that growth rates of capital services should be computed as a Törnqvist index Question: Should growth rates for all variables be computed as Törnqvist indexes? A tentative answer: provided in the annex to the document, more specifically,

GROWTH RATES COMPUTATION

38 2. STATISTICAL ISSUES Land treatment –Spain excludes land rent from estimates of real estate capital The exclusion of Residential housing from productive capital stock measures obliges to –Exclude dwelling rents estimates –Income from households with employed persons Disaggregation by levels of schooling

39 2. STATISTICAL ISSUES Disaggregation by levels of schooling. How many levels?