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Scope-Economics lecture on the impact of the Internet on growth and income distribution

Scope-Economics lecture by Huub Meijers on the impact of ICT and the Internet on economic growth and income

Huub Meijers

on 3 September 2014

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Transcript of Scope-Economics lecture on the impact of the Internet on growth and income distribution

Dr Huub Meijers
researcher at UNU-MERIT
associate professor at department of Economics at UM
The Internet and its impact on
growth and the distribution of income

Internet, trade and growth
Contribution to GDP growth
(annual rate in %, 1995-2005)
Fundamental change (paradigm shift)
opening a new era of innovation possibilities
changing economic and social structures
allowing for new combinations (combinatorial innovations)

Compare with e.g. steam, electricity
http://www.ggdc.net (growth accounting and Economic data, EUKlems)
http://sourcemap.com (Commodity Chains)
http://www.infonomics.nl (Our studies)
http://www.merit.unu.edu (UNU-MERIT)

Autor, David, 2010, "The Polarization of Job Opportunities in the U.S. Labor Market. Implications for Employment and Earnings, MIT Department of Economics and National Bureau of Economic Research (http://economics.mit.edu/files/5554)
Goos, Maarten, Alan Manning and Anna Salomons. 2009b. “Recent Changes in the European Employment Structure: The Roles of Technological Change, Globalization and Institutions.” Katholieke Universiteit Leuven
Hummels, David ,2007, "Transportation Costs and International Trade in the Second Era of Globalization", Journal of Economic Perspectives, 21 (3), 131-154
Meijers, Huub, 2012, "Does the internet generate economic growth, international trade, or both?", UNU-MERIT Working Paper Series #2012-050, UNU-MERIT, Maastricht (http://meijers.unu-merit.nl)
Timmer, Marcel, Mary O'Mahony and Bart van Ark, EU KLEMS Growth and Productivity Accounts: Overview November 2007 Release, www.euklems.net
Varian, Hal, "Computer Mediated Transactions", American Economic Review, "May 2010, 1-10
Weel, Bas ter, 2012, "Loonongelijkheid in Nederland stijgt", CPB Policy Brief, 2012/06
ICT and the Internet are
General Purpose Technologies
Internet and ICT

Information and Communication Technologies

Content and transactions
More Information & sources
The United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology.
Joint research and training institute of United Nations University and Maastricht University.
The institute explores the social, political and economic factors that drive technological innovation, with a particular focus on creation, diffusion and access to knowledge.

Coordinator of:

BSc Economics & Management of Information (specialization within economics and business economics)

MSc Information and Network Economics

both previously known, and still abbreviated as Infonomics
IBM PC (1982):
speed: 0.80 MIPS
memory: 64 KByte
price at that time: $1565

HTC Legend (2010):

speed: 9900 MIPS
memory: 384Mb
price at that time $570

So my phone is
times faster, has
times more memory and is much cheaper than an IBM PC

(even in nominal terms)
log scale
Impact of ICT and the Internet on economic growth
Growth accounting
Internet and the costs and quality of trade
refrigerated container or reefer
real time monitoring
transportation costs
Empirical work based on economic growth models

Applied to a large panel of 162 countries from 1990-2008

Internet use and economic growth (1)

Internet use and international trade (2)

Trade affects economic growth
Internet use affects international trade
The latter effect is stronger for non-high income countries
Internet use, trade and economic growth: summary
Per capita GDP (lagged)
Investment ratio
Government expenditure
Inflation rate
Per capita GDP
Area squared
Growth rate of per capita GDP
Openness ratio
Per capita Internet use
Internet use does not impact economic growth in a direct way

but instead:
International trade affects economic growth
Internet use affects international trade

This effect is stronger for low income countries than for high income countries
ICT Globalization and the labour market
Outsourcing and offshoring
Global value chains
skill biased technological change
Capital and high skilled workers are complements

substitute low skilled workers
Quality adjusted prices (US)
Source: Hummels (2007)
Source: Goos et al. 2009
Source: Timmer et al., 2008
Source: EU Klems Database
but also sensors for
GSM connection
GSM antenna
VSAT antenna
At Customer
Simultaneous equation approach
wage differences (ratios) in the Netherlands

rise in demand for high skilled workers relative to low skilled
rise in wage premium for high skilled workers
fall in demand for medium skilled workers
fall in relative wages for medium skilled

So Polarization of the labour market
Why was innovation so rapid on the Internet?
Nature of information: non rivalrous
you never run out of HTML code
you never run out of email
if you buy/get information the original is still available
Computer mediated transactions (Hal Varian)
• Facilitate new forms of contract;
• facilitate data extraction and analysis;
• facilitate controlled experimentation;
• facilitate personalization and customization.

Transactions among Workers
Next to the nature of innovations in computing, software and telecom:
Bridging Time and space
Growth accounting

Starts from expenditures and investment by firms

Allocates growth of output to all factors of input
firm level
sector level
macro level
source: Autor, 2010
ratio between percentiles
estimated on 162 countries for 1990-2008
Job and skill types
cognitive routine
cognitive non-routine
Scope-economics guest lecture
March 21, 2013 at Maastricht University
Full transcript