Together but Apart: ICT and Productivity Growth in Israel

Saul Lach, Manuel Trajtenberg and Gil Shiff

No 6732, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: There is widespread agreement about the important role played by Information and Communication Technologies (ICTs) in the US productivity revival and in the evolving US-EU productivity gap. In Israel, the ICT sector grew very rapidly during the 1990s and became a hotbed of innovation and technological advance by worldwide standards. Yet, Israel's overall productivity growth remained sluggish, with traditional sectors both in manufacturing and services seemingly unable to benefit from the success of the ICT sector. The main goal of this paper is to shed light on these twin developments. We use newly constructed data on industry-level ICT investments between 1990 and 2003 and estimate production functions for manufacturing industries augmented to include ICT capital. We find a significant elasticity of value-added with respect to ICT capital, which increases considerably with the technological sophistication of the industry. We also find that ICT capital deepening is the most important factor contributing to value added growth in manufacturing during 1995-2000, before the burst of the dot.com bubble. Because most ICT capital is concentrated in high tech industries, growth in manufacturing has been mostly confined to the high-tech sector. Facilitating the adoption of ICT in traditional industries is therefore crucial to achieving economy-wide growth. The Israeli experience described here - although restricted to the manufacturing sector - provides a useful example of the benefits and limitations associated with a growth strategy centred on a local ICT producing sector, however successful it might be.

Keywords: Gpt; Ict; Productivity growth (search for similar items in EconPapers)
JEL-codes: O3 O4 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-eff, nep-ict and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP6732 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6732

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6732

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().