Undertstanding productivity and income gaps in the OECD area: are ICT and intangibles the missing links?

This paper looks at the changes in economic performance across the OECD area during the 1990s. More specifically it reviews the explanations for differences in growth and relative levels of productivity and per capita income. Firstly it looks at the performance of labour market indicators, such as hours worked per person employed and labour force participation rates, to understand the rising Europe/US gap in labour productivity. Secondly, it reviews the evidence on the role of ICT investment in explaining productivity differentials, and the contributions of ICT-producing industries and intensive ICT-using industries to the change in productivity during the second half of the 1990s. Finally, the paper relates the scarce evidence of the role on intangible investment, in particular investment in knowledge, to productivity differentials. The analysis suggests that differences in realization of the potential to generate productivity accelerations from ICT in combination with investment in intangible capital are likely to have contributed to the differential economic growth performance within the OECD area. But it remains difficult to measure the contribution of the various explanatory factors at the macroeconomic level very precisely. Some areas for further research are identified, such as the need to improve the measurement of ICT capital as well as the analysis of its contribution to growth, to extend measures of intangible capital towards organizational capital, and to disaggregate input and output measures to the level of industries.