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Assessment of ICT impact on the formation and development of innovative economy
PhD. in Economical Sciences, A.G.Aliyev, A.S.Aliyeva
Institute of Information Technology of ANAS
AZ1141,Azerbaijan Republic,Baku c., B.Vahabzade str.,9
E-mail: [email protected]
Summary. Issues related to characteristic features and formation issues of innovative economy are researched in this
article. The role of ICT in development of new information economy is pointed out. Interrelation between distinctive features
and their other traditional production factors of information and knowledge resources such as labor and capital are reviewed.
Different approaches to evaluation of effect of ICT sector on economical development are researched. Effect of ICT on durable
economical development, as well as increasing of Gross Domestic Product (GDP) and labor productivity are studied.
Application specifications of economical-statistic methods and models related to the effect of informatization level to overall
economical deevelopment are reviewed.
Key words: information economy, information and knowledge resources, ICT effect, production factors, economicalstatistic methods and models.
Introduction. The globalization of economical relations are characteristic features of modern period.
In its turn, they affect the rapid development of new innovative economy. Information and innovation
economy entered the scientific literacy as a synonim of newly formed economy. Technological
development and inovations are the lasting driving force of economic growth. Information and knowledge
are the main development factors of the society. Knowlede and information production fields play a
significant role in development and competitiveness of countries passing from industrial development
stage to postindustrial stage. In other words, in modern period the development of countries depends on
scientific fields, as well as technological innovations, and development of new technologies.
Conducted researches demonstrates the direct relation between ICT development and application
level and economical development. Despite this, evaluation of ICT of general economical growth and its
connection with other production factors remains as a relevant issue.
Effect of ICT on formation of new economy. Main distinctive properties of the new economony
include massive expansion of creative, intellectual labor, increasing role and volume of knowledge,
development of commication of devices etc. At the same time, development of ICT is a necessary
condition for formation and development of information society and relevant economy, as well as
innovative economy.
Developmentof ICT provides accessibility of information, new communication devices,organizaton
of production processes and many economical activity types. Information communication systems
accelerate the globalization of economy by creating connections with international market and global
production markets.
Technological innovation is quite important in new ecoomy. Thus, ICT sector in itself is highly
productive and its growth affects overall economy. Expansion of ICT to other fields principally changes
their character; increases the exploitation level of information technology resources. This finds reflection
in increasing productivity growth, as well as growth of GDP. ICT creates new capabilities for collection,
processing, storage, presentation, transmission, protection etc of information and knowledge. ICT affects
the real economy through ICT production, as well as use of ICT in different fields [4]. This is explained
by, transformation of ICT sector to an imporant fields on a global level by developing service sphere.
ICT production sector is very imporant for overall GDP growth in real economy, and properties such as
rapid technological progress characteric for this field, strong and stable demand, relatively low pirces,
increasing quality and growth of product types causes growth of share of this field in GDP.
Information and knowledge resources act as production factor and direct participation form in
production process. information and knowledge resources can reduce the demand of to material resources
relatively and in total. Formed financial minister of USA U.M.Blumental noted information as the main
resource in modern economical activities, i.e. relevant to the significance of labor, capital and labor force
in the past [7]. At the same time, information in itself, only posseses potential importance and can
demonstrate itself only in relation with other resources.
Alongside with the general specifications of economic resources, informational resources possess the
characteristics stemming from specific characteristics of information which causes changes in character
of effect on labour productivity and efficiency [6,7]. Russian researcher V.Inozemtsov characterized the
specific features of information resources so that if the land and capital are exhaustible, the knowledge
can be generated and accumulated unrestrictedly. If land has limited exploiters, the knowledge can be
accessible for numerous exploiters [7]. Information communication technologies become the main mean
of use of information and knowledge resources.
Current approaches to assessment of effect of ICT sector to economic development.
In modern world innovations and technologies play prominent role in sustainable economic
development of every country and increase of productivity. This was remarked by Schumpeter, Solow,
Romer and other prominent economists in their works in last century [1].
Several researches were conducted in developed countries among them in USA, countries of Europe,
Australia, Japan and etc. regarding investigation of the effect of ICT on economy. Different methods, also
production functions were implemented in assessment of effect of ICT on development of economy in
these investigations.
Solow used production functions in order to assess the effect of scientific-technological progress on
economic development in USA. He concluded that economic growth in USA is related to technological
changes rather than labour and capital factors.
The researches in the sphere of effect of investments in computer systems on economic growth of
Finland revealed that ICT sector affects the real volume of production more in comparison with other
factors of production. In relation with these researches, by using three factor translog common cost
function consisting of investment in computer, capital and labour force, American researchers assessed
the effect of investments in ICT on economic growth in USA during 1960-1990 years. As a result of
researches it is revealed that the almost half of growth of GNP in USA is obtained on account of
investments in computer sphere [2].
American economists M.Boskin and L.Lay concluded on their researches that more than 40% of
economic growth in developed countries is obtained by technological progress, primarily by
implementation of information technologies [5].
The conducted researches regarding the effect of ICT sector on economy, generally on labour
productivity in Australia, Canada, Denmark, New Zealand, Ireland and Norway concluded that there is a
close relationship between application of ICT and general productivity factor.
Malaysian researchers [2] used production function consisting of capital (CAP) and labour (LAB –
human capital) in order to investigate the effect of ICT on economic development in several Asian
countries such as Malaysia, Thailand, Singapore, Indonesia, Philippines, Japan, Korea and China based
on 1976-2006 data collections. In order to assess the effect of ICT on production growth in Asian
countries, new parameter – telecommunication investments (TELINT) parameter was injected into the
function. By using the initial data, Hausman test and generalized least squares method (GLS) were used
in order to estimate the relationship between the dependant GDP parameter and independent labour,
capital and telecommunications parameters. As a result of researches it was once more established that
ICT plays a prominent role in economic growth and sustainable economic development, there is a
positive correlation between independent CAP, LAB and TELINT and dependant GDP parameters.
As a result of researches conducted in Singapore it is revealed that investments in ICT affect labour
productivity significantly [2].
In order to assess the direct effect of ICT on economy by an example of Shanghai province of China,
Chinese researchers [3] divided the economy into four sectors and considered ICT sector apart from other
three sectors.
Based on the share of ICT in gross domestic product, they investigated the effect of ICT on economy
in production level. For this purpose alongside with traditional production factors such as labour and
capital, they added ICT as a new production factor to standard Cobb-Douglas function.
As a result of calculations, the elasticity coefficient of ICT factor was estimated as 0.391. It shows
that 1% increase in ICT sector results in 0.391% increase in GDP. This guarantees sustainable
development of economy.
In less developed countries such as Africa, Latin America and several Asian countries some
researches were conducted in order to assess the effect of investments in ICT on economy [4]. For this
purpose, by considering also ICT-capital as a production factor alongside with human capital and physical
capital, researchers used Cobb-Douglas function in order to investigate the positive effect of investments
in ICT on long-term growth of productivity in these countries. Despite the problems with country data,
the result of investigations allows to say that investments in ICT affect the economic development of
these countries. In special case, 1 unit increase of ICT use causes 0.1% increase of GDP.
Cobb-Douglas production function was applied several times in the example of Azerbaijan.
Researchers implemented the assessment of Cobb-Douglas function parameters for analysis of
development trends of country’s economy in recent years. For assessment of production function
parameters the statistical data of 1995-2005 years was used. As a result of analysis it is revealed that
scientific-technological innovations, application of information technologies to economy cause additional
7.4% growth of GDP volume 8.
Conclusions. By using Cobb-Douglas function, different mathematical methods and statistical data
of World Bank, it is feasible to assess the effect of ICT, human capital and other resources on economy.
Conducted researches show that ICT affects GDP growth positively; ICT is a locomotive of economy and
main factor of economic development. By improving Cobb-Douglas function, it is feasible to assess the
effect of ICT on different spheres of information society. It can accelerate the expansion of new
technologies which play prominent role in construction of new society, competitive economy.
Reference
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[2 ] Ahmed E.M., Ridzuan R. The Impact of ICT on East Asian Economic Growth: Panel Estimation Approach. Journal
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Wireless Communications, Networking and Mobile Computing. 2008, 12-14 Oct. Page(s): 1 - 4 Conference Publications
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