ICT Services and Their Prices: What Do They Tell Us About Productivity and Technology?

43 Pages Posted: 21 Feb 2017 Last revised: 21 Oct 2017

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

Carol A. Corrado

The Conference Board; Georgetown University - Center for Business and Public Policy

Date Written: February, 2017

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.

JEL Classification: D24, E01, E22, L86, O41, O47

Suggested Citation

Byrne, David M. and Corrado, Carol A., ICT Services and Their Prices: What Do They Tell Us About Productivity and Technology? (February, 2017). FEDS Working Paper No. 2017-15, Available at SSRN: https://ssrn.com/abstract=2920451 or http://dx.doi.org/10.17016/FEDS.2017.015r1

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Carol A. Corrado

The Conference Board ( email )

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Georgetown University - Center for Business and Public Policy ( email )

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