Is Software Eating Economic Growth?
7 Pages Posted: 30 Aug 2018
Date Written: August 25, 2017
Difficulties in measuring the production of software might result in significant underestimation of economic growth. The magnitude of this underestimation is likely to increase over time, if software development continues its current trajectory of making up an increasingly large share of economic activity. In 1985, Windows 1.01 sold for $99. It was 541 kilobytes, which equates to a price per unit of $5.46 per KB or $5,464,646 per gigabyte (GB) of code, where one GB equals one million KB. The most recent version of the same software, Windows 10, was released in 2015 and is $119. It is 30 GB installed with updates. That is $3.97 per GB of code or a 37.5% annual price decline, yet the price index for prepackaged software are officially listed as falling 1.29% (99.519 to 98.232) in aggregate from 1997 to 2014. It's important to note that Windows just now dropped below 90% market share in the operating systems (OS) market in April 2016 and that OSs are often the largest component of software in dollar terms on most computers. Using this estimate of price declines for 2015 would imply an understatement of real gdp growth of 1.2%. Furthermore, some engineering estimates put the quantity of embedded code in modern manufactured goods as comparable in size to pre-packaged software suggesting additional unmeasured sources of real growth.
Keywords: Economic Growth; Software Production; Price estimation
JEL Classification: E01; E31; E32; O33; O47
Suggested Citation: Suggested Citation