A CGE Analysis of the Potential Impact of Information Technology on the Japanese Economy

Piyush Tiwari, Masayuki Doi and Hidekazu Itoh

Journal of Economic Policy Reform, 2003, vol. 6, issue 1, 17-33

Abstract: In this paper we investigate the potential system-wide impact of information technology on the Japanese economy using a static computable general equilibrium model with base case calibrated for the year 1995. The information technology has two potential impacts: (1) it enhances the labour productivity, and (2) e-commerce improves the efficiency of marketing and reduces the cost of marketing, typically referred as "marketing margins" in the literature. There is a growing interest among policy makers in the impact of information technology on Japanese economy. The effect of e-commerce on the economy is through reduction in cost of B-to-B and B-to-C transactions. An existing estimate of the reduction in price due to the penetration of e-commerce in different sectors in Japan indicates that there is a possibility of price reduction between 1.39 percent in the automobile sector to 0.65 percent in the machine equipment sector and so on. Our model simulates the penetration of e-commerce in the Japanese economy, which will reduce market margins through direct selling on the Internet or the like. The results overall indicate that e-commerce has positive welfare benefits for consumers and that it also leads to structural changes in the economy. On top of this we impose IT-led, Harrod-type labour productivity gains and the results indicate that the Japanese economy would have large welfare gains through the penetration of IT into various sectors of the economy.

Date: 2003
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DOI: 10.1080/13841280309601

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