Information and Communication technology and its effect on productivity growth in seven European countries

Abstract: Productivity is an important factor in determining a nation’s wealth, successfulness and long-run economic growth. As such it is of interest to determine what affects productivity and during the last couple of decade’s information and communication technology has been seen as the next innovation to have a widespread impact on productivity growth. This paper empirically examines the impact of investments in information and communication technology on productivity growth in Austria, Denmark, Finland, Italy, Spain, the Netherlands and the United Kingdoms. Furthermore is the theory of ICT being a general purpose technology examined. The econometrical study is done by examining harmonized panel data for each country consisting of 22 different sectors during the period 1970-2007. Investments in labor, ICT capital and non-ICT capital are used as explanatory variables for value added which acts as a proxy for productivity. The study shows that investments in ICT capital has only had a significant impact on productivity growth for Austria, Finland and the United Kingdoms which raises the question whether ICT truly is a general purpose technology. The results differ from previous research and brings into question the validity of those studies, the methods used and the data that has been analyzed.