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New Economy

The German Perspective

Dehio, Jochen | Döhrn, Roland | Graskamp, Rainer | Löbbe, Klaus | Loeffelholz, Hans Dietrich von | Moos, Waike | Rothgang, Michael

Schriften des Rheinisch-Westfälischen Instituts für Wirtschaftsforschung, Vol. 70


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For many observers the beginning of a dynamic economic and stock market upswing in the U.S. in the mid 1990s marked the start of a new era, the times of the new economy. This phenomenon has been under intense discussion ever since - both in the political arena as well as among scientists. Thereby the somewhat glamorous term new economy reflects the conviction held by its proponents that the use of new technologies will lead to a never ending acceleration of technological progress and economic welfare.

The origins of this development date back a long time: More than 30 years ago, the starting point was the basic innovation "digitilization"". Production as well as application of information and communications technologies (ICT) are based on this principle. At the beginning of the seventies, the first microprocessor was produced. Some ten years later, the first personal computer was brought onto the market. The commercial use of the Internet has begun in the mid nineties. In view of the economic boom in the U.S. accompanying the introduction of the Internet, the question arises as to what extent the new economy actually has exerted lasting positive effects on productivity - not only in the United States, but also worldwide.

Inspired by these developments, the Federal Ministry of Economics and Technology commissioned RWI, Essen, to study the driving forces of the new economy. In this report, the trends of the ICT sector and of the use of ICT products are analyzed with respect to the overall economic effects in Germany in comparison to the U.S. Further analyses were carried out regarding the intensity and effects of e-business. Finally, the influence of different methods of price measurement on productivity was analysed, since this is important for international comparisons of total factor productivity. The study culminates in a growth accounting calculation separating the contributions to economic growth by capital, labor, and technological progress.

Table of Contents

Section Title Page Action Price
Preface 5
Contents 7
List of Tables 10
List of Figures 12
List of Schedules 13
Introduction 15
Chapter 1: Economic Development in Germany and the U.S. 19
1. Long-Term Trends 19
2. Labor and Capital Productivity 25
3. External Trade and Foreign Direct Investment 33
4. Public Finance 35
Chapter 2: ICT and Earlier Technological Revolutions 41
1. Fundamental Technological Revolutions in Historical Perspective 42
2. Analysis of Historical Time Series 47
3. Historical Trend Growth of the Production Potential 52
4. Concluding Remarks 55
Chapter 3: Volume and Growth of the ICT Sector 57
1. Definitions and Data Base 57
2. International Comparison 59
3. ICT Sector by Industry 64
3.1 United States 64
3.2 Germany 67
4. Concluding Remarks 72
Chapter: 4 ICT Use 73
1. Economic Effects of ICT Use 74
1.1 Framework for the Analysis 74
1.2 Effects on Industry Level Productivity 76
1.3 ICT Use in the Service Sectors and Innovative Activity 79
2. ICT Use in Germany 81
2.1 General Indicators 81
2.2 E-commerce 86
2.2.1 Internet Use 86
2.2.2 Internet and e-commerce in Light of the Stock Markets 87
2.2.3 E-commerce Market 90 Definition of e-commerce 90 Effects 92 Evaluation of Selected Market Studies 93 Prospects 95 Overall Economic Effects 99 Policy Interventions in Germany 101
3. Concluding Remarks 103
Chapter 5: Macroeconomic Consequences of ICT 105
1. Methodological Approach 105
2. Data Availability 108
2.1 Data on ICT Investment and Other Economic Indicators 108
2.2 Labor Quality 110
3. Growth Accounting Analysis 110
3.1 Calculation Procedure 110
3.2 Results 112
3.3 Cyclical Effects and Multifactor Productivity Growth 114
4. Influence of Deflating Methods on Measured Growth 115
4.1 Initial Situation 115
4.2 Deflating of GDP 117
4.2.1 Methodology of the German National Accounting 117
4.2.2 Using of Fisher-Chain Indices by the BEA 119
4.3 Quality Effects 121
4.3.1 Elimination of Quality Effects in German National Accounting 121
4.3.2 Use of Hedonic Techniques by the BEA 122
4.4 Software-Hardware Relations 123
4.5 Macroeconomic Impacts of Methodological Adjustments in Germany 124
5. Trends of Total Factor Productivity and Capital Deepening 125
6. Concluding Remarks 129
Chapter 6: Summary and Conclusions 132
1. Issues and Objectives of the Study 132
2. Economic Development in Germany and the U.S. 134
3. ICT and Earlier Technical Revolutions 135
4. ICT Sector 137
5. Sectoral Use of ICT 139
6. Macroeconomic Consequences of ICT 141
7. Fields of Activity and Economic-Political Implications 143
Bibliography 148