Information Technology and the Japanese Growth Recovery By Dale W. Jorgenson (Harvard University) and Koji Nomura (Keio University) February 14, 2006
Economic Growth in the Information Age The Information Age: Faster, Better, Cheaper! Role of Information Technology: IT Prices and the Cost of Capital Japanese Growth Recovery: IT Investment and Productivity Growth Economics on Internet Time: The New Research Agenda
The Information Age: Faster, Better, Cheaper! Moore (1998): "If the automobile industry advanced as rapidly as the semiconductor industry, a Rolls Royce would get half a million miles per gallon, and it would be cheaper to throw it away than to park it." Invention of the Transistor: Development of Semiconductor Technology. The Integrated Circuit: Memory Chips; Logic Chips. Moore s Law: The number of transistors on a chip doubles every 18-24 months(pentium 4, released November 20,2000, has 42 million transistors).
Source: No Exponential is Forever, Gordon Moore ftp://download.intel.com/research/silicon/gordon_moore_isscc_021003.pdf)
Holding Quality Constant Matched Models and Hedonics Semiconductor Price Indexes: Memory and Logic Chips. Computer Price Indexes: The BEA-IBM Collaboration. Communications Equipment: Terminal, Switching, and Transmission. Software: Prepackaged, Custom, and Own-Account.
Relative Prices of Computers and Semiconductors, 1977-2000 1000 All price indexes are divided by the output price index. 100 Log Scale (1996=1.0) 10 1 0.1 0.01 Computers Memory Logic 1977 1980 1983 1986 1989 1992 1995 1998
500 350 92 95 97 99 02 05 08 11 1992 NTRS 1994 NTRS Minimum Feature Size (nm) (DRAM Half Pitch) 250 180 130 100 70 International SEMATECH 1997 NTRS 1998 / 1999 ITRS 2001/ 2003 ITRS* 50 35 Area for Future ITRS Acceleration Acceleration 25 92 95 97 99 02 05 08 11 *Note the 2003 ITRS timing is unchanged from the 2001 ITRS Semiconductor Roadmap Acceleration
Relative Prices of Computers, Communication Equipment, and Software, 1977-2000 100 All price indexes are divided by the output price index. Log Scale (1996=1.0) 10 1 0.1 Computers Central Office Switching Equipment Prepackaged Software 1977 1980 1983 1986 1989 1992 1995 1998
Role of Information Technology: IT Prices, Investment, and Productivity Input Shares of IT: Computers, Communications Equipment, and Software. Capital Contribution: IT versus Non-IT Capital Services. Capital Contribution by Type: Computers, Communications Equipment, and Software.
IT Capital Stock in Japan Real composition of total IT capital stock (1995 price). 1.0 0.8 Share (%) 0.6 0.4 0.2 0.0 1960 1965 1970 1975 1980 1985 1990 1995 2000 Computers Communication Equipment Custom Software Packaged Software Own Account Software
Capital Input Contribution of Information Technology in the U.S. Average annual percentage growth rates, weighted by income shares. 2.5 Annual Contribution (%) 2.0 1.5 1.0 0.5 0.0 1977-1990 1990-1995 1995-2000 Non-IT Capital Services IT Capital Services
Annual Contribution (%) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Capital Input Contribution of Information Technology in Japan Average annual percentage growth rates, weighted by income shares. 1960-1977 1977-1990 1990-1995 1995-2000 Non-IT Capital Services IT Capital Services
0.4 IT Capital Input Contribution to Growth in Japan Average annual percentage growth rates, weighted by income shares. Annual Contribution (%) 0.3 0.2 0.1 0.0 1960-1977 1977-1990 1990-1995 1995-2000 Computers Communication Equipment Custom Software Packaged Software Own Account Software
Household Finance Wholesale Trade Business Svc excl. Computer Professional and Social Svcs Communications Government excl. Education Computer Services Retail and Eating Real Estate (rental) Insurance M achinery excl. Computers Printing and Publishing Government Enterprises Transportation Health private Other Services Electricity Instruments and Legal Chemicals Electronic Components Government Education Oil and Gas Mining Communications Equipment Food and Tobacco Other Transportation Construction Gas Fabricated Metal Computers and Office Other Electrical M ach M otor Vehicles Rubber and Plastic Stone, Clay, Glass Paper Textiles, Apparel, Leather Lumber, Wood, Furniture Primary Metal Agriculture Education, private Petroleum Refining Non energy M ining Coal Mining Industry Contributions to Capital Input Growth in the U.S., 1977-2000 Non-IT Capital IT Capital Note: Industries sorted by IT Capital contribution -0.1 0.0 0.1 0.2 0.3 0.4 0.5
Other Service Finance and Insurance Public Administration Communications Wholesale and Retail Electronic Components Other Electrical M ach Construction Electricity Chemical Products Medical Care Computers Railroad Transportation M achinery excl Computers Printing and Publishing Road Transportation Motor Vehicles Foods Other Manufacturing Education Communications Equipment Precision Instruments Iron and Steel Metal Products Real Estate Research Petroleum Refining Agriculture, Forestry, Fishery Gas Supply Non-ferrous Metal Stone, Clay, Glass Storage Facility Service Paper and Pulp Air Transportation Textile Other Transportation Equipment Water Supply Rubber Products Apparel Coal Products Furniture and Fixture Woods and Related Products Leather Products Other Mining Coal Mining Water Transportation Industry Contributions to Capital Input Growth in Japan, 1977-2000 Non-IT Capital IT Capital Note: Industries sorted by IT Capital contribution -0.1 0.0 0.1 0.2 0.3
3.0 Capital Input Contribution by Country 2.5 2.0 1.5 1.0 0.5 0.0 1980-1989- 1995-1989 1995 2003 1981-1989- 1995-1989 1995 2003 1980-1989- 1995-1989 1995 2003 1980-1989- 1995-1989 1995 2003 1980-1989- 1995-1989 1995 2003 1980-1989- 1995-1989 1995 2003 1980-1989- 1995-1989 1995 2003 US Canada UK France Germany Italy Japan Non-IT IT
Japanese Growth Recovery: IT Investment and Productivity Growth. Total Factor Productivity: IT-Production versus Non-IT Production. Sources of Japanese Economic Growth: Capital Input, Labor Input, and TFP. Average Labor Productivity Growth: Capital Deepening, Labor Quality, TFP.
Productivity Contribution of IT Producing Industries in the U.S. Average annual percentage growth rates, weighted by Domar weights. Annual Contribution (%) 0.8 0.6 0.4 0.2 0.0-0.2-0.4 1977-1990 1990-1995 1995-2000 Other Industries IT Producing Industries
Productivity Contribution of IT Producing Industries in Japan 1.5 Average annual percentage growth rates, weighted by Domar weights. Annual Contribution (%) 1.0 0.5 0.0-0.5-1.0 1960-1977 1977-1990 1990-1995 1995-2000 Other Industries IT Producing Industries
Industry Productivity Growth in the U.S., 1977-2000 Computers and Office Electronic Components Coal Mining Agriculture Communications Equipment Rubber and Plastic Textiles, Apparel, Leather Wholesale Trade Primary Metal Other Electrical M ach Non Energy Mining Finance Fabricated M etal Stone, Clay, Glass Food and Tobacco Other Transportation Equipment Instruments and M iscellaneous Electricity Lumber, Wood, Furniture Paper Real Estate (rental) Transportation Retail and Eating Communications Government Enterprises Government Education Government excl. Education Household Other Services Computer Services M otor Vehicles Chemicals Professional and Social Svcs. Business Svc excl. Computer Petroleum Refining M achinery excl. Computers Printing and Publishing Education, private Gas Construction Oil and Gas Mining Legal Health private Insurance Note: Industries sorted by productivity growth. -0.04-0.02 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14
Industry Productivity Growth in Japan, 1977-2000 Computers Electronic Components Communications Communications Equipment Textile Petroleum Refining Gas Supply Non-ferrous Metal Precision Instruments Wholesale and Retail Finance and Insurance Other Electrical M ach Chemical Products Coal Products Air Transportation M otor Vehicles Other Transportation Real Estate Paper and Pulp M achinery excl Computers Electricity Other Manufacturing Iron and Steel Agriculture, Forestry, Fishery Storage Facility Service Metal Products Rubber Products Coal Mining Stone, Clay, Glass Apparel Public Administration Printing and Publishing Other Service Woods and Related Products Leather Products Furniture and Fixture Water Transportation Other Mining Construction Research Road Transportation Railroad Transportation Foods Water Supply Education M edical Care Note: Industries sorted by productivity growth. -0.02-0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07
Industry Contributions to Productivity in the U.S., 1977-2000 Computers and Office Equipment Electronic Components Wholesale Trade Agriculture Finance Food and Tobacco Textiles, Apparel, Leather Rubber and Plastic Real Estate (rental) Primary Metal Other Electrical M ach Coal Mining Communications Equipment Instruments and Miscellaneous Manuf. Retail and Eating Fabricated M etal Other Transportation Equipment Transportation Lumber, Wood, Furniture Electricity Stone, Clay, Glass Paper Non energy Mining Communications Government Enterprises Other Services Government Education Government excl. Education Household M otor Vehicles Chemicals Computer Services Education, private Petroleum Refining Printing and Publishing Business Svc excl. Computer Legal M achinery excl. Computers Professional and Social Svcs Gas Insurance Oil and Gas Mining Health private Construction Note: Industries sorted by productivity contribution. -0.15-0.10-0.05 0.00 0.05 0.10 0.15 0.20
Wholesale and Retail Electronic Components Communications Real Estate Finance and Insurance Other Electrical M ach Computers M otor Vehicles Chemical Products Petroleum Refining M achinery excl Computers Iron and Steel Textile Agriculture, Forestry, Fishery Non-ferrous Metal Communications Equipment Electricity Other Manufacturing Paper and Pulp Precision Instruments Other Transportation Metal Products Gas Supply Coal Products Stone, Clay, Glass Air Transportation Rubber Products Storage Facility Service Coal Mining Apparel Public Administration Printing and Publishing Leather Products Woods and Related Products Research Furniture and Fixture Other Mining Water Supply Water Transportation Railroad Transportation Other Service Road Transportation Education Foods M edical Care Construction Industry Contributions to Productivity in Japan, 1977-2000 Note: Industries sorted by productivity contribution. -0.20-0.15-0.10-0.05 0.00 0.05 0.10 0.15 0.20 0.25 0.30
Sources of Economic Growth in the U.S. Annual Contribution (%) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5 1977-1990 1990-1995 1995-2000 Labor Non-IT Capital IT Capital TFP
Sources of Economic Growth in Japan Annual Contribution (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 1960-1977 1977-1990 1990-1995 1995-2000 Labor Non-IT Capital IT Capital TFP
Computers and Office Electronic Components Computer Services Communications Equipment Finance Business Svc excl. Computer Communications Professional and Social Svcs. Wholesale Trade Household Rubber and Plastic Other Services Instruments and Miscellaneous Health private Transportation Real Estate (rental) Retail and Eating Motor Vehicles Government Enterprises Education, private Agriculture Other Transportation Equipment Insurance Other Electrical Mach Electricity Government Education Printing and Publishing Lumber, Wood, Furniture Fabricated Metal Coal Mining Legal Stone, Clay, Glass Construction Paper Food and Tobacco Non Energy Mining Chemicals Machinery excl. Computers Government excl. Education Petroleum Refining Textiles, Apparel, Leather Primary Metal Oil and Gas Mining Gas Sources of Growth in Industry Output in the U.S., 1977-2000 Intermediate Labor Capital TFP Note: Industries sorted by output growth -0.05 0.00 0.05 0.10 0.15 0.20 0.25
Computers Electronic Components Communications Equipment Communications Air Transportation Other Electrical Mach Gas Supply Finance and Insurance Other Service Motor Vehicles Other Manufacturing Real Estate Machinery excl Computers Medical Care Electricity Research Storage Facility Service Precision Instruments Printing and Publishing Public Administration Wholesale and Retail Chemical Products Road Transportation Water Supply Metal Products Rubber Products Construction Railroad Transportation Non-ferrous Metal Paper and Pulp Petroleum Refining Foods Education Stone, Clay, Glass Agriculture, Forestry, Fishery Iron and Steel Furniture and Fixture Other Transportation Equipment Water Transportation Apparel Coal Products Other Mining Woods and Related Products Leather Products Textile Coal Mining Sources of Growth in Industry Output in Japan, 1977-2000 Intermediate Labor Capital TFP Note: Industries sorted by output growth -0.10-0.05 0.00 0.05 0.10 0.15 0.20
5.0 Sources of Economic Growth by Country 4.0 3.0 2.0 1.0 0.0-1.0-2.0 1980-1989 1989-1995 1995-2003 1981-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 US Canada UK France Germany Italy Japan Labor Non-IT Capital IT Capital Non-IT Total Factor Productivity IT Total Factor Productivity
Sources of Labor Productivity Growth in the U.S. Annual Contribution (%) 2.5 2.0 1.5 1.0 0.5 0.0-0.5 1977-1990 1990-1995 1995-2000 Labor Quality Non-IT Capital Deepening IT Capital Deepening TFP
Sources of Labor Productivity Growth in Japan 6.0 5.0 Annual Contribution (%) 4.0 3.0 2.0 1.0 0.0-1.0 1960-1977 1977-1990 1990-1995 1995-2000 Labor Quality Non-IT Capital Deepening IT Capital Deepening TFP
Computers and Office Equipment Electronic Components Communications Equipment Coal Mining Finance Household Other Electrical Mach Instruments and Miscellaneous Mfg. Textiles, Apparel, Leather Agriculture Communications Computer Services Wholesale Trade Non Energy Mining Other Transportation Equipment Primary Metal Petroleum Refining Rubber and Plastic Electricity Motor Vehicles Fabricated Metal Stone, Clay, Glass Food and Tobacco Paper Machinery excl. Computers Government Enterprises Chemicals Government excl. Education Lumber, Wood, Furniture Retail and Eating Professional and Social Svcs. Other Services Transportation Printing and Publishing Insurance Real Estate (rental) Oil and Gas Mining Government Education Education, private Health private Gas Business Svc excl. Computer Construction Legal Sources of Industry Labor Productivity Growth in the U.S., 1977-2000 Intermediate Deepening Labor Quality Capital Deepening Productivity Note: Industries sorted by ALP growth -0.05 0.00 0.05 0.10 0.15 0.20 0.25
Computers Electronic Components Communications Equipment Communications Coal Mining Other Electrical Mach Railroad Transportation Textile Motor Vehicles Agriculture, Forestry, Fishery Precision Instruments Finance and Insurance Air Transportation Public Administration Other Transportation Rubber Products Other Manufacturing Gas Supply Metal Products Coal Products Non-ferrous Metal Other Mining Electricity Wholesale and Retail Other Service Machinery excl Computers Chemical Products Apparel Storage Facility Service Real Estate Petroleum Refining Printing and Publishing Paper and Pulp Water Transportation Stone, Clay, Glass Iron and Steel Water Supply Furniture and Fixture Road Transportation Construction Woods and Related Products Research Medical Care Leather Products Education Foods Sources of Industry Labor Productivity Growth in Japan, 1977-2000 Intermediate Deepening Labor Quality Capital Deepening Productivity Note: Industries sorted by ALP growth -0.04-0.02 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18
3.50 Sources of Labor Productivity Growth by Country 3.00 2.50 2.00 1.50 1.00 0.50 0.00-0.50-1.00-1.50 1980-1989 1989-1995 1995-2003 1981-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 1980-1989 1989-1995 1995-2003 US Canada UK France Germany Italy Japan Labor Quality Non IT Capital Deepening IT Capital Deepening Non-IT Total Factor Productivity IT Total Factor Productivity Annual Contribution (%)
TFP-gap between the U.S. and Japan in 1960 Note: Preliminary Estimates (Feb 2006) Aggregate 42.Household 41.Public Administration 38.Research 40.Other Services 39.Medical Care 37.Education 36.Real Estate 35.Finance and Insurance 34.Wholesale and Retail 33.Gas Supply 32.Electricity 31.Communications 30.Other Trans and Storage 29.Air Transportation 28.Water Transportation 27.Railroad Transportation 26.Misc Manufacturing 25.Precision Instruments 24.Other Transportation Equipmen 23.Motor Vehicles 22.Other Electrical Machinery 21.Electronic Components 20.Communications Equipment 19.Computers 18.Machinery 17.Metal Products 16.Primary Metal 15.Stone, Clay, Glass 14.Leather Products 13.Petroleum Refining 12.Chemical Products 11.Printing and Publishing 10.Paper and Pulp 9.Furniture and Fixture 8.Woods and Related Products 7.Apparel 6.Textile 5.Foods 4.Construction 3.Other Mining 2.Coal Mining 1.Agriculture, Forestry, Fishery 2.50 2.00 1.50 1.00 0.50 0.00
TFP-gap between the U.S. and Japan in 1970 Note: Preliminary Estimates (Feb 2006) Aggregate 42.Household 41.Public Administration 38.Research 40.Other Services 39.Medical Care 37.Education 36.Real Estate 35.Finance and Insurance 34.Wholesale and Retail 33.Gas Supply 32.Electricity 31.Communications 30.Other Trans and Storage 29.Air Transportation 28.Water Transportation 27.Railroad Transportation 26.Misc Manufacturing 25.Precision Instruments 24.Other Transportation Equipmen 23.Motor Vehicles 22.Other Electrical Machinery 21.Electronic Components 20.Communications Equipment 19.Computers 18.Machinery 17.Metal Products 16.Primary Metal 15.Stone, Clay, Glass 14.Leather Products 13.Petroleum Refining 12.Chemical Products 11.Printing and Publishing 10.Paper and Pulp 9.Furniture and Fixture 8.Woods and Related Products 7.Apparel 6.Textile 5.Foods 4.Construction 3.Other Mining 2.Coal Mining 1.Agriculture, Forestry, Fishery 2.50 2.00 1.50 1.00 0.50 0.00
TFP-gap between the U.S. and Japan in 1980 Note: Preliminary Estimates (Feb 2006) Aggregate 42.Household 41.Public Administration 38.Research 40.Other Services 39.Medical Care 37.Education 36.Real Estate 35.Finance and Insurance 34.Wholesale and Retail 33.Gas Supply 32.Electricity 31.Communications 30.Other Trans and Storage 29.Air Transportation 28.Water Transportation 27.Railroad Transportation 26.Misc Manufacturing 25.Precision Instruments 24.Other Transportation Equipmen 23.Motor Vehicles 22.Other Electrical Machinery 21.Electronic Components 20.Communications Equipment 19.Computers 18.Machinery 17.Metal Products 16.Primary Metal 15.Stone, Clay, Glass 14.Leather Products 13.Petroleum Refining 12.Chemical Products 11.Printing and Publishing 10.Paper and Pulp 9.Furniture and Fixture 8.Woods and Related Products 7.Apparel 6.Textile 5.Foods 4.Construction 3.Other Mining 2.Coal Mining 1.Agriculture, Forestry, Fishery 2.50 2.00 1.50 1.00 0.50 0.00
TFP-gap between the U.S. and Japan in 1990 Note: Preliminary Estimates (Feb 2006) Aggregate 42.Household 41.Public Administration 38.Research 40.Other Services 39.Medical Care 37.Education 36.Real Estate 35.Finance and Insurance 34.Wholesale and Retail 33.Gas Supply 32.Electricity 31.Communications 30.Other Trans and Storage 29.Air Transportation 28.Water Transportation 27.Railroad Transportation 26.Misc Manufacturing 25.Precision Instruments 24.Other Transportation Equipmen 23.Motor Vehicles 22.Other Electrical Machinery 21.Electronic Components 20.Communications Equipment 19.Computers 18.Machinery 17.Metal Products 16.Primary Metal 15.Stone, Clay, Glass 14.Leather Products 13.Petroleum Refining 12.Chemical Products 11.Printing and Publishing 10.Paper and Pulp 9.Furniture and Fixture 8.Woods and Related Products 7.Apparel 6.Textile 5.Foods 4.Construction 3.Other Mining 2.Coal Mining 1.Agriculture, Forestry, Fishery 2.50 2.00 1.50 1.00 0.50 0.00
TFP-gap between the U.S. and Japan in 2000 Note: Preliminary Estimates (Feb 2006) Aggregate 42.Household 41.Public Administration 38.Research 40.Other Services 39.Medical Care 37.Education 36.Real Estate 35.Finance and Insurance 34.Wholesale and Retail 33.Gas Supply 32.Electricity 31.Communications 30.Other Trans and Storage 29.Air Transportation 28.Water Transportation 27.Railroad Transportation 26.Misc Manufacturing 25.Precision Instruments 24.Other Transportation Equipmen 23.Motor Vehicles 22.Other Electrical Machinery 21.Electronic Components 20.Communications Equipment 19.Computers 18.Machinery 17.Metal Products 16.Primary Metal 15.Stone, Clay, Glass 14.Leather Products 13.Petroleum Refining 12.Chemical Products 11.Printing and Publishing 10.Paper and Pulp 9.Furniture and Fixture 8.Woods and Related Products 7.Apparel 6.Textile 5.Foods 4.Construction 3.Other Mining 2.Coal Mining 1.Agriculture, Forestry, Fishery 2.50 2.00 1.50 1.00 0.50 0.00
2.0 TFP-gap between the U.S. and Japan for three IT-Producing Industries, 1960-2000 Log Scale (1996=1.0) 1.0 0.0 Computers Communications Equipment Electric Components Note: Preliminary Estimates (Feb 2006) 1960 1965 1970 1975 1980 1985 1990 1995 2000
Economics on Internet Time: The New Research Agenda. The Solow Paradox -- we see computers everywhere but in the productivity statistics -- versus the Information Age. Equity Valuations and Growth Prospects: accumulation of intangible assets versus irrational exuberance. Widening Wage Inequality:capital-skill complementarity versus skillbiased technical change. Modeling IT and the semiconductor industry: permanent versus transitory contributions to economic growth.
Data for Japanese Economy Periods 1960-2000 (1955-2000 for Capital Stock) Industry Classification 46 Industries + Household 3 IT Producers (Computer & Peripherals, Communication Equipment, and Electronic Components) +43 Industries at KEO Database Asset Classification 102 Asset Classification by 46 Industries 90 Tangible Assets 5 Intangible Assets (3 Software, others) 3 Inventories 4 Types of Land Use
International Comparison of Software Professionals Year Share to total employees ISCO-213 ISCO-312 ISCO-213/ (213+312) Greece 1998 0.2 7444 7196 50.8 Spain 1998 0.3 44026 34107 56.3 France 1998 0.4 196705 99011 66.5 Netherlands 1998 0.9 100765 82144 55.1 U.S. 2000 1.3 1633280 Sweden 1999 1.3 75881 24474 75.6 Japan 2000 1.4 753493 363753 67.4 Data: Employee Base, U.S.(Occupational Employment and Wages, BLS), Japan(Population Census, MIC), Others(OECD, Ahmad [2003]) Classification: U.S. SOC-15-1020,30, 50 and JSCO-06 correspond to ISCO-213
Software Professionals in Japan 1970 1975 1980 1985 1990 1995 2000 Employment Total Male Female 0.09 0.13 0.02 0.15 0.22 0.04 0.23 0.34 0.05 0.55 0.77 0.20 0.91 1.26 0.37 0.94 1.35 0.32 1.23 1.80 0.41 Employee Total Male Female 0.13 0.18 0.04 0.22 0.29 0.06 0.32 0.44 0.08 0.72 0.96 0.29 1.13 1.52 0.48 1.13 1.59 0.40 1.43 2.07 0.49 Data: Population Census, MIC, Japan (Koji Nomura[2004]:Capitalizing Own-Account Software in Japan)