Worldwide Implications

Since the Internet and many information technologies are available worldwide, one might expect any macroeconomic benefits—like rising labor productivity growth, lower unemployment, or lower inflation—to also occur in other world economies, particularly in the largest developed economies. While the U.S. economy is far and away the largest economy in the world, the fact is economic performance between the U.S. and other developed economies has widened further since the mid-1990s.

Research by van Ark, Inklaar, and McGuckin (2002) present evidence that from 1995–2000, productivity growth in the U.S. was nearly double the rate experienced in the largest European Union economies, which includes Austria, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Spain, and Sweden. Moreover, the largest differentials in productivity growth occurred in the information and communication technology (ICT) intensive industries. There was little difference in productivity growth rates in the non-ICT industries.

Their analysis suggests that ICT diffusion in Europe is following similar industry patterns to those observed in the U.S., but at a considerably slower pace. The authors' conclude that the key differences between Europe and the U.S. are in the intensive ICT-using services, where the U.S. has experienced much stronger productivity growth. Most of the overall gap in productivity growth between the U.S. and Europe can be found in the retail, wholesale trade, and securities (finance) sectors. ^[10]

Baily (2001) examines GDP per capita from 1995–2000 and concludes that the major European industrialized economies and Japan are all operating at a level of economic activity that is slightly less than three quarters of the level experienced in the United States. Since higher levels of GDP per capita can result from higher productivity or from more hours worked, Baily analyzes the interrelationship in 2000 between how many hours a country's residents work and productivity (output per hour). Against the major industrialized economies, the United States is an obvious outlier, with both high employment and high productivity. In other words, the U.S. has been the only economy, thus far, to combine full employment with high productivity.

Most researchers find (and speculate to a certain extent) that the U.S. experience is a result of good macroeconomic policies and a competitive economic environment. Policies that encourage the productive use of new information technologies in an environment that demands economic efficiency in order to maximize shareholder wealth tend to lead to rising productivity growth. The benefits from information technologies must be exploited. Highly competitive economies constantly force companies to search for better ways to conduct business or develop new products/services. And the greatest improvements can be found in utilizing new technologies that increase a firm's efficiency and effectiveness.

^[10]There are, of course, measurement issues on ICT's impact on economic growth. These issues are complicated further when making international comparisons and are discussed in van Ark (2002).