Download IT, outsourcing, and economic growth

Information Technology
and International Trade in Services:
The Next Wave of Productivity Growth
Catherine L. Mann
CLMann at Brandeis.edu
Brandeis University
Peterson Institute for International Economics
Prepared for the RIIE conference, Stockholm
November 20, 2006
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IT is a Special Economic ‘Driver’
Global sourcing accelerates change, diffusion,
and policy demands
• ‘General purpose technology’
– IT investment wrt income > 1 (growth elastic)
– IT investment wrt price >> 1 (price elastic)
– R&D intensive
• Productivity enhancing
– Gains from diffusion throughout US… (it’s not just about IT)
– Diffusion varies across sectors… (new opportunities)
– Affects labor tasks, wages, employment… (winners, losers)
• Globalization/Outsourcing’s role
– Reduces IT prices, contributes to diffusion and gains, but also to
change in labor demands
– For the US, the gains from IT hardware outsourcing may be $250
1
billion
Services are a Special Sector
Information technology globalizes, but local
requirement specializes
• Income and development elastic
– Services demand wrt income > 1 (growth elastic)
– Services share of GDP rises with economic development
• Trade & FDI in services growing rapidly
– Trade growth (1996-2002): 36% compared to 20% for goods
– FDI stocks (1996-2002): $950B to $4.4T; 28% business activities 31%
Finance activities
• IT and Globalization’s role
– Allows fragmentation, codification of tasks
– Accentuates potential for customization as well as commoditization
of tasks and activities
– Will impact a wider swath of labor force at home and abroad
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Globalization and IT Together
• Fast pace of change…
– In technology, geography of production and demand for IT
• Strong synergies…
– Technological change & global sourcing go hand-in-hand, each
augments other.
• Broad-based diffusion and application…
– In GDP and employment-intensive services industries
• Imply accelerating globalization.
– Business implications—more fragmentation, specialization
– Labor implications—widening gap in wage, employment prospects
– Policy implications—laissez-faire or intervene?
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IT Hardware Globalization, IT Hardware Prices
& the US Economy: A Quantification
Sources of price decline
1. US innovation is key:
Technological change h
generates 70-90% of
price declines—globalized
research is a new concern
2. But also global mktplace:
Logic of macro gains
…. IT price decline => IT purchase
Diffused IT investment through US
due to price elas. of demand > 1.0
….
IT investment =>transformation
capital deepening, drives key
changes in workplace practices,
new products
regression estimate that
…. Transformation => productivity
10-30 % additional price
IT accounts for more than ½ of
increased productivity growth ‘90s;
decline from global
production & global markets
… 10-30% more price decline?
How important is 10-30%
GDP growth 0.3 /yr higher (95-2000)
additional price decline from
=> ¼- ½ trillion extra dollars 4
globalization?
Why Invest in IT?
IT in networks reduce own-firm costs
Network linkages stronger for services than for mfg.
Multiple, diverse ‘forward’ linkages in services yields more cost reductions
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than for mfg which has more ‘backward’ linkages to fewer suppliers.
IT Intensity & Productivity Growth:
Positively related, wide variation, services lead & lag
Leading sectors—already networked, common software ‘platform’.
Lagging sectors—diverse firm sizes, complex relationships, regulations
Lagging sectors may never catch-up but present new opportunity…
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Opportunity may be realized at lower cost/price of IT, esp. software
Slide 1
International Services trade
IT intensity  International comparative advantage
Leading services sectors run international trade surplus
Technology accelerates fragmentation and globalization of services
Not just IT, but broad range of services and intellectual property
Exposes more of the labor force to global technology forces.
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Slide 5
Trade in computer and information services
Rising affiliated imports,new deficit in CIS: A worry or not?
Potential for the same price-reductions and productivity gains
As from the globalization of IT hardware
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Slide 5
International services trade
IT intensity  Productivity growth
Trade in Services and Services Productivity Growth
Positively Related,
Controlling for IT Capital Stocks, Enterprise Concentration.
As of 1997 IT capital stocks, hardware and telecoms more important.
What will new capital stock data reveal?
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Slide 5
Technology and the Labor Market
Accentuates cycles, and for more of the economy
Diffusion of IT leads to technology jobs throughout US economy
—2/3 of IT workers work outside the IT sector.
So, IT professionals exposed to both the tech cycle, business cycle,
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Technology accelerates globalization’s effect
Slide 5
IT-Related Labor Markets:
a Microcosm for All Services?
Globalization & diffusion of IT accentuates wage, employment gaps
Low-wage in real trouble—from trade & technology
Increased ‘codification’ puts some high-wage at risk (programming)
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Increased jobs at middle & high-wage demand integrative & analytical
Slideskills
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R&D intensity of IT is very high
Implications of global collaborative R&D?
Insufficient R&D workers risks loss of technological leadership,
With implications for balance of payments too.
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Policies for the National Interest
– Transformation challenge
• National gains to the economic pie from global sourcing
requires business environment conducive to transformation,
and ensuring worker-job matches so that gains are widely
shared.
– Global challenge
• National gains from accelerating globalization depends on other
countries’ policies. Yet, services liberalization stalled in Doha.
– Innovation challenge
• National gains from global collaborative innovation require a
‘home base’ supply of domestic sci/tech people, universitybusiness consortia, and funding.
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