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Information technology World Economic Outlook says IT revolution promises long-term benefits for global economy

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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In addition to providing a twice-yearly survey of global prospects and policies, the IMF’s World Economic Outlook includes analyses of selected topics of particular significance or interest. The recently published October 2001 World Economic Outlook takes an in-depth look at the information technology (IT) revolution. Although discussion of this important topic has been overshadowed by recent events (see IMF Survey, October 8, page 309), it is certainly a major development in the global economy, affecting all countries at all levels of development.

Information technology (IT) expenditure and production

(percent of GDP)

1 IT expenditure comprises hardware, software, and telecommunications equipment.

2 IT production comprises gross output of active components, electronic data processing equipment (adjusted for inputs of active components), and telecommunications equipment (adjusted for inputs of active components).

Data: IMF, World Economic Outlook October 2001

Although spending on IT (which the World Economic Outlook defines as “computers, computer software, and telecommunications equipment”) is likely to remain weak in the immediate future, according to the IMF study, as past overinvestment unwinds, the longer-term benefits for the global economy are likely to continue, or even accelerate, in the years to come.

Summing up its findings, the World Economic Outlook notes that, to date the IT revolution has largely followed the pattern of past technological revolutions, including an initial phase characterized by a boom and bust in the stock prices of innovating firms, as well as in spending on goods embodying the new technology. The IT revolution is different from past technological revolutions, however, in the globalization of production, which has strengthened real and financial linkages across countries. The rapid growth in the production of IT goods implies that changes in global demand conditions, driven mainly by IT-using advanced economies, have a significant impact on the exports of IT-producing countries. While positive demand shocks helped to boost IT production in 1999 and 2000, the current slump in global IT spending is a heavy drag on these IT-producing countries.

Notwithstanding the adverse impact of the current IT slump on some countries, the economic benefits of the IT revolution are already significant and will likely continue. Thus far, the benefits arise mainly from the fall in the relative prices of semiconductors and computers and accrue primarily to the users of these products. There is evidence that total factor productivity growth in IT production and IT-related capital deepening have boosted labor productivity growth in some countries, and it is likely that—in the coming years—economic activities in a variety of countries will be increasingly reorganized to take advantage of IT, yielding further benefits. The fall in relative prices of IT goods has also led to significant increases in consumer surpluses in IT-using countries. Over the near term, despite the relatively rapid diffusion of the technology around the globe, the IT revolution is likely to benefit advanced countries more than developing countries. In the long run, however, the distribution of benefits will depend on specific country characteristics rather than relative incomes.

The IT revolution has important policy implications. Structural policies should encourage the widespread adoption and effective use of IT, including by promoting flexible labor markets and efficient service sectors. Uncertainty about the precise magnitude and likely duration of the acceleration in productivity implies that policymakers should place less weight on variables about which uncertainty has increased, such as the output gap, and more weight on observable variables, like actual inflation and a wide array of indicators of future inflation.

Copies of World Economic Outlook October 2001 are available for $42:00 (academic price: $35.00) each from IMF Publication Services. See below for ordering information.

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