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Working Paper
Economic Growth in the New Economy
Evidence from Advanced Economies
By definition, the 'New Economy' is an economy where business firms have learnt to take advantage of both the ICT revolution and the globalization of business activities in ways which improve productivity. First, by surveying recent research findings, this paper confirms that both the production and use of ICT have been the factors behind the improved economic performance of the United States in the 1990s. The benefits from ICT use are likely to have exceeded the benefits from ICT production. However, the evidence for the New Economy is much weaker outside the United States. In the other 07 countries, the contributions to output growth from the use of ICT have generally been less than half of the contributions estimated for the US.
Second, the paper estimates the contributions from the use and production of ICT to output growth in Finland which is one of the leading ICT producers in Europe. It is shown that the contribution from the use of ICT to output growth in the market sector has increased from 0.3 percentage points in the early 1990s to 0.7 points in the late 1990s. In addition, the fast growth of multi-factor productivity in the ICT producing industries has had a substantial growth contribution which has been at least as large as that from the use of ICT. However, unlike in the US, there has been no acceleration in the trend rate of labour productivity in Finland. 0ther factors, notably the decline in the use of non-ICT capital per worker, have offset the productivity-enhancing impact of ICT. In this sense, the New Economy is yet to demonstrate its strength.