UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

In the digital economy the inventory-output ratio is lower than in the traditional
economy since computerization allows improved production planning and logistics. At
the same time the digital economy consists to a considerable extent of digital services
where the supply elasticity is obviously very high. In the case of services provided via
the internet [e.g. software (application sharing services) or music] the supply elasticity
is extremely high. This could contribute not only to higher growth in fields where demand
follows a logistical expansion path over time but also could reduce the inflationary
pressure for any given money supply growth; that is, in economic upswings the
inflation rate will increase less than in the traditional economy. This seems to indeed
have been the case in the 1990s. CREPON / HECKEL (2001) find that computer use
and total factor productivity gains in the ICT sector have reduced the inflation rate by
0.3 and 0.4 percentage points in the period 1987-1998, a considerable impact with respect
to the average inflation rate of 1.4% in this period in France.
JORGENSEN/STIROH (2000) have argued that US growth resurgence is partly
related to an increasing use and production of ICT. OLINER / SICHEL (2000) have
also concluded that the revival in US productivity growth is strongly related to information
technology dynamics. About two-thirds of the rise in US labor productivity in
1996-99 can be explained by an increasing use and production of information technology.
This two-thirds can in turn be partly assigned to capital deepening and partly to
higher total factor productivity growth. DAVERI (2001) argues that growth in EU
countries is also partly an information technology story. The following table shows that
IT capital accumulation can explain a considerable part of cross-country growth gaps.
The shares of the growth gaps explained by IT capital is roughly 25-30% of the total
for six EU countries (Germany, France, Italy, UK, Sweden, and Belgium), but this fraction
is larger for Denmark (90%), and Greece, Spain, Portugal, the Netherlands, Austria
and Finland (50-60%). As regards capital input, differences in the overall contributions
of capital cannot explain much of the EU growth gap vis-à-vis the US. It is noteworthy
that the growth gap observed in Italy, Germany, France, and Sweden vis-à-vis the US is
largely explained by gaps in the contribution of labor. Following similar experiences in
the 1960s, 1970s, and 1980s (DOUGHERTY / JORGENSEN, 1996), the growth contribution
of labor was negative in many EU countries in the 1990s. As regards total
factor productivity growth, several EU countries show higher TFP growth rates than
the US. DAVERI (2001) emphasizes that while it is difficult to draw clear conclusions
with respect to TFP given the residual character of this variable, the time variations of
the TFP growth rates are interesting. The five largest countries in the EU had smaller
TFP growth in 1996-99 than in the 1980s and the first part of the 1990s. However, TFP
growth has increased in Portugal, Greece, Finland, and Ireland over time. This intra-EU
difference is not fully understood, although BASSANINI / SCARPETTA / VISCO
(2000) argues that the increase in TFP was relatively high in countries with flexible
labor markets and less regulated product markets. However, Spain, the UK, and the
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