UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

4. The Role of Telecommunications and the Internet for Trade and Growth
Jungmittag and Welfens presented three studies to assess the impact of telecommunications
and the Internet on economic growth (JUNGMITTAG / WELFENS, 1998;
WELFENS / JUNG-MITTAG, 2000; WELFENS / JUNGMITTAG, 2001b). In the
following section we will summarize some of the major findings and highlight additional
issues.
4.1 Telecommunications, Innovation and Economic Growth in Germany 1960-
1990
In the first study alternative sources of technical progress were identified and approximated
by means of indicator variables, which were then considered when estimating
long-term production functions for the business sector of the Federal Republic of Germany,
without agriculture, forestry, and fishing and without housing sector from 1960
until 1990 (JUNGMITTAG / WELFENS, 1998). They distinguished between technical
progress which is the result of one's own research and development activities, and the
import of technological know-how through licensing agreements. The first source of
technical progress was approximated through the time lagged stock of patents at the
German Patent Office (Deutsches Patentamt); the second was approximated by the real
fees for licenses captured in the balance of payments of the Federal Republic of Germany.
In addition, the use of telecommunications was integrated in the long-term production
function in that it is approximated by the indicator variables – the number of
annual telephone calls.
With the technological innovations and the role of information and communication
explicitly taken into consideration, the extended Cobb-Douglas production function
now is in logarithmic form:
(1) y = a + α ⋅ k + β ⋅l
+ γ ⋅ pat − + δ ⋅lex
+ ε ⋅tc
+ u ,
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t
t
t
t 2 t t t
where y represents the output, k the capital employed and l the amount of labor (lower
cases denote logarithms). The parameters α and β represent the partial production
elasticities of the factors capital and labor. Furthermore, pat represents the stock of patents,
lex the actual expenditure on licenses and tc the number of telephone calls.
For estimating the long-term production functions, the concept of the cointegration
of time series introduced by Engle and Granger (cf. ENGLE / GRANGER, 1987)
was used. This concept allows the differentiation between actual long-term relations
and merely spurious regressions if time series are trending. Since in this study only the
long-term relations and not the short-term dynamics between the output, the usual pro-