Accounting for the impact of information and communication technologies on total factor productivity : towards an endogenous growth approach

Economists now broadly agree on the fact that technical progress and technology dissemination constitute the ultimate source of sustained economic growth. In particular, economic analysis in the context of the so-called endogenous-growth approach (often termed "new growth theories") has shifted towards elements such as human capital (education and training) and R&D, both of which could be used to increase knowledge accumulation and technical progress. This paper provides a review of the literature on the impact of ICT on economic growth and productivity. It also provides input to the discussion on extending the neoclassical growth framework to incorporate elements of endogenous growth theories in order to consider the impact of ICT diffusion on growth and productivity. This study gives an overview of the traditional growth accounting framework, rooted in Solow's contributions and its extension, taking into account cases where under-investment in growth-promoting items such as R&D can be detected. As in the case of R&D, the resulting aggregate use of ICT maybe too low to boost productivity in a given economy, given that private agents may under-invest in ICT if the private economic returns from these investments are not fully internalized. The overall macroeconomic outcome may therefore result in a situation where the growth potential of ICT investment is far from realised. This outcome would allow us to explain why many EU countries still lag behind in terms of ICT investment and ICT impact on economic growth, particularly as compared to the US. This study provides a number of theoretical caveats in order to understand the main issues at stake and opens the door to future theoretical development in the literature on ICT and growth.