How Technological Change Impact Upon Economic Growth

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How technological change impact upon economic growth

There have been dramatic changes in global economics in the last two decades through the flow of trade, foreign investment and of course technology, with a major rise in the manufacture and spread of information and communications technologies (ICT). For the course of this paper, ICT, a general purpose technology will be used to include in broad terms, computers – software and hardware, telecommunications, satellite communications, email and internet. Development in ICT has been a major contributory factor to the growth of productivity and economy in the United States (US) and the European Union (EU). Productivity is linked with both the ICT producing (manufacturers) and using (service) sectors. The rates to which countries adopt, use and invest in ICT differ. Some were quick to exploit the many benefits of using ICT while others saw it as a passing fad and so were slow to react to it. D’ Costa, A (2006) writes that a ‘new economy’ emerges when sectoral developments and structural changes are combined with ICT and services. This leads to a knowledge-based information society, which is relative to competitiveness and growth. The end of the 20th century sees countries in the European Union and the United States leading the ‘new economy’ The OECD has reported that there will be continuous and sustained long term growth in the ICT sector because developments of new services and products will drive demand for them higher.

This paper will examine the effects of CT and technological changes on the economic growth of the European Union and the United States. An Overview of the ICT industry in Europe and the United State Information and Communication Technologies are now means for firms to achieve competitive advantage over their peers. Developments within industries such as farming, education, manufacturing, banking, entertainment, etc. means that ICT is now used widely both in the private and public sectors. The rise in the demand for ICT products and services can be linked to the rise of the knowledge-based or ‘information society’ (Lyon, D, 1995) where people’s activities are now based on a huge volume of information and knowledge. Technologies have made gotten rid of geographical constraint, offering more possibilities for sharing and getting knowledge. Constant development and improvement of ICT products mean people have to be re-educated on the functionalities. Because people can now learn about and compare products without even seeing them physically, they can actually dictate the pace of development as they feedback to the manufacturers. Consumers’ expectations are on the rise, strengthening the demand for ICT products and services. Becchetti and Adriani (2005) refer to ICT as an ‘enabler of knowledge diffusion’. They surmise that adopting new technologies is vital to explaining the difference in the income levels across the countries in the EU and US.

ICT Impact on Growth

According to the OECD, the software and IT services account 11% and 20% of the growth in the ICT sector. However, the EU is still behind the US. One of the effects of ICT growth is the impact that it had on the national GDP of the major countries within the EU and US. Jorgenson and Stiroh (2000) stress the importance of ICT in the US economy. The table below from the OECD shows the contributions of ICT investment to GDP growth in EU countries and the US between 1990-95 and 1995-2003, in percentage points. As we can see, the US is in the lead with almost 0.8%.

Table. 1 Contributions of ICT investment to GDP growth, 1990-95 and 1995-2003 (1), in percentage points Source:

The counties share the advantage of access into larger markets. The relative stability of the economy in the 90s and early 2000s created a growth stimulus for the industry. Meleki and Moriset (2008) refer to the concept of reach and richness while explaining the emerging spatial patterns of the...
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