Economic Growth in the Information Age

By

Dale W. Jorgenson

Harvard University

Saturday, October 12, 2002

Economic Growth in the Information Age

INTRODUCTION:

Prices of Information Technology

THE INFORMATION AGE:

Faster, Better, Cheaper!

ROLE OF INFORMATION TECHNOLOGY:

IT Prices and the Cost of Capital

AMERICAN GROWTH RESURGENCE:

IT Investment and Productivity Growth

ECONOMICS ON INTERNET TIME:

The New Research Agenda

THE INFORMATION AGE:Faster, Better, Cheaper!

MOORE'S LAW: The number of transistors on a chip doubles every 18-24 months(Pentium 4, released November 20,2000, has 42 million transistors).

MOORE (1998): "If the automobile industry advanced as rapidly as the semiconductor industry, a Rolls Royce would get half a million miles per gallon, and it would be cheaper to throw it away than to park it."

INVENTION OF THE TRANSISTOR:

Development of Semiconductor Technology.

THE INTEGRATED CIRCUIT:

Memory Chips; Logic Chips.

Transistor Density on Micro Processors and Memory Chips

HOLDING QUALITY CONSTANTMatched Models and Hedonics

 SOFTWARE:

Prepackaged, Custom, and Own-Account.

SEMICONDUCTOR PRICE INDEXES:

Memory and Logic Chips.

 COMPUTER PRICE INDEXES:

The BEA-IBM Collaboration.

COMMUNICATIONS EQUIPMENT:

Terminal, Switching, and Transmission.

Relative Prices of Computers and Semiconductors, 1977-2000

0

0

1

10

100

1,000

1977 1982 1987 1992 1997

Log

Scal

e (1

996=

1)

Computers Memory Logic

All price indexes are divided by the output price index .

95 97 99 02 05 08 11

1994 NTRS

1997 NTRS

1998 / 1999 ITRS

M

inim

um

Fe

atu

re S

ize

(n

m)

(D

RA

M H

alf

Pit

ch

)

500

350

250

180

130

100

70

50

35

25 95 97 99 02 05 08 11

92

92

1992 NTRS

2000 Plan

International SEMATECH

Area for Future Acceleration

Semiconductor Roadmap Acceleration

0

1

10

100

1977 1982 1987 1992 1997

Log

Scal

e (1

996=

1)

Computers Central Off ice Sw itching Equipment Prepackaged Softw are

All price indexes are divided by the output price index.

Relative Prices of Computers, Communications, and Software, 1977-2000

0

1

10

100

1977 1982 1987 1992 1997

Log S

cale

(199

6=1

)

Computers Communications Semiconductors Software Services

Relative Prices of Computers, Communications, Software, and Services, 1977-2000 All price indexes are divided by the output price index.

ROLE OF INFORMATION TECHNOLOGY:IT Prices and the Growth of Output.

OUTPUT CONTRIBUTION BY TYPE:

Computers, Communications Equipment, Semiconductors, Software, and IT Services.

OUTPUT SHARES OF IT:

Computers, Communications Equipment, Semiconductors, Software, and IT Services.

OUTPUT CONTRIBUTION OF IT:

IT versus Non-IT Value Added.

Value Added Shares of Information Technology by Type, 1977-2000

0

1

2

3

4

5

6

7

1977 1982 1987 1992 1997

%

Computers Communications Semiconductors Softw are Services Total

Share of current dollar gross domestic product.

Industry Contributions to Value Added Growth

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1977-1990 1990-1995 1995-2000

An

nu

al C

on

trib

uti

on

(%

)

Computers Communications Semiconductors Software ServicesNote: Services is the capital service f low from Household and Government IT capital.

Domar-w eighted contrubtions of industry value added

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1977-1990 1990-1995 1995-2000

Annu

al C

ontri

butio

n (%

)

Non IT IT

Industry Contribution to Value Added

Average annual percentage growth rates, weighted by the value share.

Industry Contributions to Value Added Growth, 1977-2000

-0.1 0 0.1 0.2 0.3 0.4 0.5 0.6

Oil and Gas MiningGas

Petroleum RefiningMachinery excl. Computers

Non Energy MiningPrimary Metal

Coal MiningStone, Clay, Glass

Motor VehiclesInsurance

Other Electrical MachTextiles, Apparel, Leather

ConstructionEducation, private

PaperOther Transportation Equipment

Fabricated MetalLumber, Wood, Furniture

LegalPrinting and Publishing

ChemicalsCommunications Equipment

Instruments and Miscellaneous Mfg.Government Enterprises

ElectricityRubber and PlasticFood and Tobacco

TransportationGovernment Education

Computer ServicesCommunications

AgricultureOther ServicesHealth private

Government excl. EducationBusiness Svc excl. Computer

Electronic ComponentsReal Estate (rental)

Retail and EatingComputers and Office Equipment

Professional and Social Svcs.Finance

Wholesale TradeHousehold

ROLE OF INFORMATION TECHNOLOGY:IT Prices, Investment, and Productivity.

CAPITAL CONTRIBUTION BY TYPE:

Computers, Communications Equipment, and Software.

INPUT SHARES OF IT:

Computers, Communications Equipment, and Software.

CAPITAL CONTRIBUTION:

IT versus Non-IT Capital Services.

Capital Input Contribution of Information Technology

0.00

0.50

1.00

1.50

2.00

2.50

1977-1990 1990-1995 1995-2000

Ann

ual C

ontr

ibut

ion

(%)

Non-IT Capital Services IT Capital Services

Average annual percentage growth rates, weighted by income shares.

-0.05 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45

Coal MiningNon energy MiningPetroleum RefiningEducation, private

AgriculturePrimary Metal

Lumber, Wood, FurnitureTextiles, Apparel, Leather

PaperStone, Clay, Glass

Rubber and PlasticMotor Vehicles

Other Electrical MachComputers and Office

Fabricated MetalGas

ConstructionOther Transportation

Food and TobaccoCommunications Equipment

Oil and Gas MiningGovernment Education

Electronic ComponentsChemicals

LegalInstruments and

ElectricityOther ServicesHealth private

TransportationGovernment EnterprisesPrinting and Publishing

Machinery excl. ComputersInsurance

Real Estate (rental)Retail and Eating

Computer ServicesGovernment excl. Education

CommunicationsProfessional and Social SvcsBusiness Svc excl. Computer

Wholesale TradeFinance

Household

IT Capital Non-IT Capital

Industry Contributions to Capital Input Growth, 1977-2000

Note: Industries sorted by IT capital contribution.

Capital Input Contribution of Information Technology by Country

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

90-95 95-1999 90-95 95-2000 90-95 95-1999 90-95 95-2000 90-95 95-2000 90-95 95-1999 90-95 95-1999 90-95 95-2000 90-95 95-2000

Australia Canada Finland France Germany Italy Japan United Kingdom United States

Annu

al C

ontri

butio

n (%

)

Non-IT ICT

AMERICAN GROWTH RESURGENCE: IT Investment and Productivity Growth.

AVERAGE LABOR PRODUCTIVITY GROWTH:

Capital Deepening, Labor Quality, TFP.

TOTAL FACTOR PRODUCTIVITY:

IT-Production versus Non-IT Production.

SOURCES OF U.S. ECONOMIC GROWTH:

Capital Input, Labor Input, and TFP.

Sources of U.S. TFP Growth

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1977-1990 1990-1995 1995-2000

Annu

al A

vera

ge C

ontri

butio

n(%

)

Reallocation of Non-college Educated Labor Reallocation of College Educated Labor Reallocation of Non-IT Capital

Reallocation of IT Capital Wgt Sectoral TFP (Other) Wgt Sectoral TFP (IT Producers)

Industry Contributions to Productivity, 1977-2000

-0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20

ConstructionHealth private

Oil and Gas MiningInsurance

GasProfessional and Social Svcs

Machinery excl. ComputersLegal

Business Svc excl. ComputerPrinting and Publishing

Petroleum RefiningEducation, private

Computer ServicesChemicals

Motor VehiclesHousehold

Government excl. EducationGovernment Education

Other ServicesGovernment Enterprises

CommunicationsNon energy Mining

PaperStone, Clay, Glass

ElectricityLumber, Wood, Furniture

TransportationOther Transportation Equipment

Fabricated MetalRetail and Eating

Instruments and Miscellaneous Manuf.Communications Equipment

Coal MiningOther Electrical Mach

Primary MetalReal Estate (rental)Rubber and Plastic

Textiles, Apparel, LeatherFood and Tobacco

FinanceAgriculture

Wholesale TradeElectronic Components

Computers and Office Equipment

Note: Industries sorted by productivity contribution.

Sources of U.S. Economic Growth

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1977-1990 1990-1995 1995-2000

Aver

age

Annu

al C

ontri

butio

n (%

)

Non-college Educated Labor College Educated Labor Non-IT Capital IT Capital TFP

Sources of Growth in Industry Output, 1977-2000

-5 0 5 10 15 20 25

Government EducationGovernment excl. Education

HouseholdGovernment Enterprises

Other ServicesProfessional and Social Svcs.

Education, privateLegal

Health privateBusiness Svc excl. Computer

Computer ServicesReal Estate (rental)

InsuranceFinance

Retail and EatingWholesale Trade

GasElectricity

CommunicationsTransportation

Rubber and PlasticPetroleum Refining

ChemicalsPrinting and Publishing

PaperTextiles, Apparel, Leather

Food and TobaccoInstruments and MiscellaneousOther Transportation Equipment

Motor VehiclesElectronic Components

Communications EquipmentOther Electrical Mach

Computers and OfficeMachinery excl. Computers

Fabricated MetalPrimary Metal

Stone, Clay, GlassLumber, Wood, Furniture

ConstructionOil and Gas Mining

Coal MiningNon Energy Mining

Agriculture

Intermediate Labor Capital Productivity

Output Growth, 1990-95 versus 1995-2000

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Australia Canada Finland France Germany Italy Japan UnitedKingdom

United States

%

1990-95 1995-2000Note: Latest available output growth is 1995-1999 for Finland, Italy, and Japan.

Sources of U.S. Labor Productivity Growth

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1977-1990 1990-1995 1995-2000

Ave

rage

Ann

ual C

ontr

ibut

ion

(%)

Labor Quality Non-IT Capital Deepening IT Capital Deepening TFP

Sources of Industry Labor Productivity Growth, 1977-2000

-5 0 5 10 15 20 25

Government EducationGovernment excl. Education

HouseholdGovernment Enterprises

Other ServicesProfessional and Social Svcs.

Education, privateLegal

Health privateBusiness Svc excl. Computer

Computer ServicesReal Estate (rental)

InsuranceFinance

Retail and EatingWholesale Trade

GasElectricity

CommunicationsTransportation

Rubber and PlasticPetroleum Refining

ChemicalsPrinting and Publishing

PaperTextiles, Apparel, Leather

Food and TobaccoInstruments and MiscellaneousOther Transportation Equipment

Motor VehiclesElectronic Components

Communications EquipmentOther Electrical Mach

Computers and OfficeMachinery excl. Computers

Fabricated MetalPrimary Metal

Stone, Clay, GlassLumber, Wood, Furniture

ConstructionOil and Gas Mining

Coal MiningNon Energy Mining

Agriculture

Capital Deepening Intermediate Deepening Labor Quality Productivity

ECONOMICS ON INTERNET TIME: The New Research Agenda.

• Modeling IT and the semiconductor industry: permanent versus transitory contributions to economic growth.

•The Solow Paradox -- we see computers everywhere but in the productivity statistics -- versus the Information Age.

•Equity Valuations and Growth Prospects: accumulation of intangible assets versus irrational exuberance.

•Widening Wage Inequality:capital-skill complementarity versus skill-biased technical change.