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ICT Services and their Prices: What do they tell us about Productivity and Technology?

Carol Corrado and David Byrne

No 2017-015, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper reassesses the link between ICT prices, technology, and productivity. To understand how the ICT sector could come to the rescue of a whole economy, we extend a multi-sector model due to Oulton (2012) to include ICT services (e.g., cloud services) and use it to calibrate the steady-state contribution of the ICT sector to growth in aggregate U.S. labor productivity. Because ICT technologies diffuse through the economy increasingly via purchases of cloud and data analytic services that are not fully accounted for in the standard narrative on ICT's contribution to economic growth, the contribution of ICT to growth in output per hour going forward is found to be substantially larger than generally thought--1.4 percentage points per year. One reason why the estimated contribution is so large is that official ICT asset prices are found to substantially understate the productivity of the sector. The model developed in this paper also has implications for the relationship between prices for ICT services and prices for the capital stocks (i.e., ICT assets) used to supply them. In particular, ICT service prices may diverge from asset prices and capture productivity gains from ICT asset management by the sector.

Keywords: Computer software and internet services; Information and communications technology (ICT); Price measurement; High-performance computing; Technology; Prices; ICT services; Cloud computing; Productivity (search for similar items in EconPapers)
JEL-codes: O41 E01 O47 D24 E22 L86 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-02-10, Revised 2017-10-20
New Economics Papers: this item is included in nep-ict and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

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https://www.federalreserve.gov/econresdata/feds/2017/files/2017015pap.pdf (Original) (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-15

DOI: 10.17016/FEDS.2017.015r1

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