UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

cases, namely EU computer price reductions equal to the US and (ii) the case of only a
50% price reduction, which might reflect various impediments to low prices in Europe,
including government regulations in Germany forbidding high rebates on products (this
law is being abolished in late 2001). At the bottom line the contribution of ICT to potential
output growth in the US has been about twice as high as in the EU-15. Among
EU countries only Ireland, itself strongly shaped by US multinational investment in
ICT, showed a growth contribution of ICT exceeding that in the US in the 1990s. Disregarding
Ireland only Sweden, Finland, the UK, the Netherlands, and Belgium came
within a range of about two-thirds of US figures in 1995-99. With a direct ICT investment
effect of almost 1 percentage point in the late 1990s, the US clearly benefited
from high nominal investment growth in ICT when prices were falling in relative
terms.
ICT dynamics are certainly not the full story behind the different growth performance
of various OECD countries. However, ICT is one crucial element. Moreover,
rapid accumulation of ICT capital might facilitate the exploitation of new knowledge
and stimulate innovation as well as diffusion. This is particularly interesting when we
take a closer look at the development of R&D-GDP ratios in general and at the development
of high technology labor productivity. As regards the latter RÖGER (2001)
shows that the US has established a clear lead vis-à-vis the EU since 1993; with a lag
of about two years the US world market share of high technology exports has increased
strongly while that of Germany and Japan has fallen since 1993. Both Germany and
Japan no longer benefit from the exceptional position they had in the Cold War era,
namely that they were special among the largest five OECD countries in devoting almost
their entire R&D resources to civilian projects.
As the following graph shows, there is a general tendency of R&D-GDP ratios
to rise in the late 1990s. Sweden is the leader in the OECD with an increase of slightly
more than 1 percentage point in the 1990s, bringing the country to a top figure of
roughly 4%. Finland also shows a strong increase and reached 3.2% in 1999. Germany’s
R&D ratio decreased for more than a decade after 1987, and it has increased
only modestly from a bottom figure of about 2% in 1996. The US had a slight reduction
of the R&D ratio in the early 1990s but increased in the second half of the decade
and was close to 2.3% in 2000. The temporary reduction of the US R&D ratio is, however,
mainly due to the falling expenditures on military R&D. This also holds for
France and the UK which, however, stabilized R&D ratios in the late 1990s. While
Canada and Italy were close together in 1989 with slightly less than 1%, Canada has
increased its R&D-GDP ratio, while that of Italy has fallen to a very low level of
roughly 0.6% in the mid-1990s. Interestingly, both Japan and Korea reached R&D-
GDP ratios slightly above that of Germany in the 1990s.
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