Investment in Information and Communication Technologies: an Empirical Analysis

Recent economic literature has identified sizeable differences across industrialised countries in the diffusion of Information and Communication Technologies (ICTs) throughout the production structure. This paper addresses the question of whether differences in the price elasticity of demand for ICTs could explain why Europe lags behind the United States in terms of ICT diffusion. We use annual macroeconomic data covering the period 1975-2001 and consider five countries: France, Germany, the Netherlands, the United Kingdom and the United States. 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. Our 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.