Dynamic Aspects of US Telecommunications Productivity Measurement

Abstract

Information and communications technology (ICT) is an important source of economic growth and productivity improvement. Both the theoretical and empirical literature suggests a positive impact from ICT equipment investment and service production on firm, industry and national productivity.¹ Aggregate productivity growth is via improved interaction among advanced communications technology and computer hardware that leads to lower transaction costs. Such technological improvement enhances the speed and accuracy of analysis, storage and transmission of information. Also, improvement increases the availability of knowledge. This process necessarily generates spillover or network effects among firms (Katz and Shapiro 1985). In particular, recent analysis by (1999), 2003, (Mun and Nadiri 2002a, 2002b) and (2002) examine the role of the US ICT industry within the national economy.² These studies focus on the computer equipment and software, and telecommunication industry market segments as a growth industry and their impact on the economy more generally. Their reported results are based on econometric model estimates using data from US industry. The sample data for analysis of US telecommunications industry total factor productivity (TFP) growth trends is for 1935 through 1987. For analyzing the impact of the telecommunications industry on other US industry, they use data from 34 sectors of the economy for 1950 to 1991. These data are annual price, output and input time-series for industries that comprise the major economic sectors. A flexible functional form, translog cost function is employed.