Investment in ICTs: an empirical analysis

Abstract

This paper addresses the question of whether differences in the price elasticity of demand for Information and Communication Technologies (ICTs) could explain why Europe lags behind the USA in terms of ICT diffusion. Annual macroeconomic data covering the period 1975–2001 is used and five countries considered: France, Germany, the Netherlands, the UK and the USA. Europe's lag in ICT diffusion does not appear to be linked to cross-country differences in the price elasticity of demand for ICT products. The results suggest that at least part of the gap in ICT diffusion should be ascribed to more structural cross-country differences. The estimated value of the price-elasticity of computer hardware and software is generally lower than −1 which, given the decline in the relative price of these products, explains the increase in their share of investment expenditure and GDP. This situation is characteristic of a diffusion stage and is necessarily temporary.

Acknowledgements

We would like to thank Sebastien Jean, Tristan Maury and Patrick Sevestre for their useful comments. The analyses presented here are those of the authors and not those of their respective institutions.

Notes

For more information, see Appendix 1 of Cette and Noual (2003) or a longer paper available from the authors.

Cette and Noual (2003) propose a number of short-term estimation adjustments corresponding to an error correction model. These yield weak results because of the short time dimension of the data.