Trends and Characteristics in ICT Production and Use

The transformation of advanced economies into knowledge-based economies entails a greater presence and weight of information and communication technologies in economic activity. Until recently, this process was thought to be a smooth one, with ever-expanding IT and telecoms sectors. The last few years have, however, witnessed a marked slowdown, which can be traced to previous over-investment, including excess telecoms capacity and Y2K fixes; the correction in high-tech stock markets, with a collapse of equity values; and saturation in certain markets such as consumer PCs in the United States and mobile phones in some European countries (OECD, 2002a).

Nevertheless, data and analysis from a number of international organizations confirm that despite the slowdown in economic activity, the recent sharp decline in technology stocks, and the slump in the ICT equipment industry, among industrialized economies, ICT intensity (total ICT markets/GDP) has remained relatively stable, driven by strong growth in telecommunications services, to 7% to 8% on average in 2002 (under 7% for Western Europe and more than 8% for the U.S. and Japan) for goods and services combined (EITO, 2003). Software still represents less than 10% of the total ICT market, but is growing fastest.

Furthermore, ICT sectors (IT hardware and software, IT services, telecommunications equipment and services) remain an essential part of the current trend towards globalization of economic activity. Trade in ICT goods has grown at almost double the rate of trade in total goods, with trade in IT services growing faster than trade in equipment. Both are growing at much higher rates than the GDP. Foreign investment in the ICT sector is also strong, and the focus of new international investment in ICTs is shifting from manufacturing to service activities (OECD, 2002b).

Developments in ICT sectors in and of themselves, however, do not help explain the rising importance of ICT in the economy. More important is the increase in investment in ICTs by all sectors. In recent years, investment in ICTs has been the most dynamic component of investment, rising from less than 10% of total nonresidential investment in the business sector in the early 1980s to between 10% and 35% in 2000, depending on the country. Investment in software was one of the most dynamic areas. In the United States for example, it rose from only 3% of investment in 1980 to over 14% in 2000 (OECD, 2002a).

Real growth in ICT investment was particularly rapid over the second half of the 1990s. During the 1990s, and despite different positions in the business cycles, the growth of investment has increasingly been driven by ICT investment, particularly in the case of the U.S., Australia, and Finland (Colecchia & Schreyer, 2001). Investment in ICT equipment grew fastest, but the growth of investment in software accelerated sharply in the 1990s. This growth in ICT investment has been fueled by a steady decline in the relative prices of computer components. On the basis of harmonized price indices, constructed using the United States as a benchmark, the rate of decline in the price of computers and office equipment increased from the 1980s to the 1990s, even doubling in some cases (Schreyer & Pilat, 2001).