1. ICEG E uropean Center The ICT Sector and Economic Growth:Some Thoughts on the NMS Countries Pál Gáspár Presentation at the Annual Conference of IDATE, in Monpellier, 24 November 2004

2. ICEG European Center, www.icegec.org The Structure of presentation I.ICT and growth : the main contributing factors II.Experiences of the NMS III.Policies to enhance ICT contribution to growth in NMS

3. I. ICT and growth : the main contributing factors

4. ICEG European Center, www.icegec.org Contribution of the ICT sector to growth The three main channels : Investments in ICT sector lead to capital deepening and more productive use of capital, Technical progress in the ICT sector leads to inceasing TFP in ICT- producing sectors Increase in overall TFP through spill-overs, network effects and overall efficiency gains Distinction between: Contribution of ICT producing, ICT-using and non-ICT sectors differs contribution of ICT manufacturing and services within ICT producing and using sectors differs

5. ICEG European Center, www.icegec.org Looking at individual factors A. Investments in the ICT sector: - Investments in ICTcreated in advanced countries an annual GDP growth of between 0.3% and 0.8% according to OECD (2003) - US: ICT investment in total is 30% in Europe 17%. B. Increase in ICT sector: Some countries have very strong ICT sectors that contribute significantly to the GDP growth (annual contribution in Korea, Ireland and Finland: approximately 1%). Gordon: ICT production matters, not the diffusion (presence of few very active producers in IT) Daveri (04) in Finnland what mattered was not the ICT usage, but the driving force was the ICT production.(Nokia)

6. ICEG European Center, www.icegec.org Looking at individual factors C. Increase of TFP creates economic growth: Jorgenson-Ho-Stiroh(02): productivity growth due to ICT capital accummulation in several industries, ICT usage matters Blanchard (03), Art-Inklar-vaGuckin (03), McKinsey Global Institute (02), Stiroh (03). The major difference between the USA and the EU is in Y/L in retail, banking and wholesale, D. Other factors or the ones that help to realize the productivity advances: Retail sector: competition what matters and not IT in accelerating Y/L growth, McKinsey-report: organizational change accompanying IT investments and deepening matters, Gordon : increase in IT I increases Y/L not everywhwere and not in each industry, Bailey : not all IT investment but process management, better softwares, and improvement in workplace organizations

7. II. Experiences of the NMS with ICT Sector and Economic Growth

8. ICEG European Center, www.icegec.org The Spread of ICT use in NMS

9. ICEG European Center, www.icegec.org The contribution of the ICT Sector to GDP

10. ICEG European Center, www.icegec.org Features of ICT Sector Contributiton A.ICT contributed mainly to TFP growth through the spread of ICT sector - ICT producing sectors 5%, using 26% and non-ict 68% in the Eu in 2003, in HU 7%, 25% and 68%, CZ 4%,24%,72% and PL 2%,24%,74% B. Factors of ICT contribution labor cuts and TFP drove productivity increases, its direct productivity contribtuion in NMS equals EU-15, less contribution via the increase of TFP or ICT capital intensity, in most countries worse indicators in case of use indirect effects are weak: organisaitonal changes due to ICT, increase use of ICT in the busienss and housholds sector contributes far less than in the EU

11. ICEG European Center, www.icegec.org Future Policies Issues encourage FDI and I in ICT sectors especially in those countries where the comparative advantages are present (general investment climate) create more competition by easing entry conditions and progressing with deregulation, support faster increase in services and ICT use besides manufacturing: access (costs), content (eGovernment) and technology (broadband) make steps to improve current position in key Lisbon indicators

12. ICEG European Center, www.icegec.org Labour Productivity

13. ICEG European Center, www.icegec.org Employment Rates

14. ICEG European Center, www.icegec.org R+D Expenditures

15. THANK YOU FOR YOUR ATTENTION PÁL GÁSPÁR Director 14 Korompai Street H-1124 Budapest Tel: +36-1-248-1160 Fax: +36-1-248-1161 E-mail: icegec@axelero.hu Web site : www.icegec.org