ICT externalities: measurement issues and their effects on output growth

This chapter focuses on externalities that arise from ICT investment and how they impact productivity at the industrial level. Expanding on the model proposed by Basu et al. (2003), it contributes both conceptually and empirically. Conceptually, our modeling considers a number of ICT externalities, such as domestic and foreign externalities, inter-industry and intra-industry externalities, and inward and outward externalities, and accounts for the investment in a wide set of complementary intangible capital types, namely training, design, and organizational capital, that are important in order to correctly identify spillover effects and separate them from other intangible capital effects. Empirically, our panel dataset includes 15 European countries observed from 2000 to 2014. ICT externalities are evaluated via fixed-effects regressions. Our results support the positive effect of many ICT spillover types on productivity, with domestic spillovers having the greatest impact. Additionally, our analysis supports the idea that ICT impacts productivity mainly via spillovers, making the impact of direct investment insignificant when spillovers are included in the model.