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EUROPE’S PATH TOWARDS INNOVATION AND TECHNOLOGY
By
Dale W. Jorgenson
Harvard University
EUROPE’S PATH TOWARDS INNOVATION AND TECHNOLOGY
INTRODUCTION:
Prices of Information Technology
THE INFORMATION AGE:
Faster, Better, Cheaper!
ROLE OF INFORMATION TECHNOLOGY:
IT Prices and the Cost of Capital
AMERICAN GROWTH RESURGENCE:
IT Investment and Productivity Growth
ECONOMICS ON INTERNET TIME:
Lessons for Europe
THE INFORMATION AGE:Faster, Better, Cheaper!
MOORE'S LAW: The number of transistors on a chip doubles every 18-24 months(Pentium 4, released November 20,2000, has 42 million transistors).
MOORE (1998): "If the automobile industry advanced as rapidly as the semiconductor industry, a Rolls Royce would get half a million miles per gallon, and it would be cheaper to throw it away than to park it."
INVENTION OF THE TRANSISTOR:
Development of Semiconductor Technology.
THE INTEGRATED CIRCUIT:
Memory Chips; Logic Chips.
Transistor Density on Micro Processors and Memory Chips
HOLDING QUALITY CONSTANTMatched Models and Hedonics
SOFTWARE:
Prepackaged, Custom, and Own-Account.
SEMICONDUCTOR PRICE INDEXES:
Memory and Logic Chips.
COMPUTER PRICE INDEXES:
The BEA-IBM Collaboration.
COMMUNICATIONS EQUIPMENT:
Terminal, Switching, and Transmission.
Relative Prices of Computers and Semiconductors, 1959-2000
0
0
1
10
100
1,000
10,000
100,000
1959 1964 1969 1974 1979 1984 1989 1994 1999
Log
Scal
e (1
996=
1)
Computers Memory Logic
All price indexes are divided by the output price index .
95 97 99 02 05 08 11
1994 NTRS
1997 NTRS
1998 / 1999 ITRS
M
inim
um
Fe
atu
re S
ize
(n
m)
(D
RA
M H
alf
Pit
ch
)
500
350
250
180
130
100
70
50
35
25 95 97 99 02 05 08 11
92
92
1992 NTRS
2000 Plan
International SEMATECH
Area for Future Acceleration
Semiconductor Roadmap Acceleration
0
1
10
100
1,000
10,000
1959 1964 1969 1974 1979 1984 1989 1994 1999
Log
Scal
e (1
996=
1)
Computers Central Office Switching Equipment Prepackaged Software
All price indexes are divided by the output price index.
Relative Prices of Computers, Communications, and Software, 1959-2000
ROLE OF INFORMATION TECHNOLOGY:IT Prices, Investment, and Productivity.
CAPITAL CONTRIBUTION BY TYPE:
Computers, Communications Equipment, and Software.
INPUT SHARES OF IT:
Computers, Communications Equipment, and Software.
CAPITAL CONTRIBUTION:
IT versus Non-IT Capital Services.
AMERICAN GROWTH RESURGENCE:
Capital Input, Labor Input, and Productivity.
Input Shares of Information Technology by Type, 1948-2000
0
1
2
3
4
5
6
1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999
%
Computers Communications Equipment Software Total
Percent share of current dollar gross domestic income.
Capital Input Contribution of Information Technology by Type
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1948-73 1973-90 1990-95 1995-00
Annu
al C
ontri
butio
n (%
)
Computers Communications Software
Average annual percentage growth rates, weighted by the income shares.
Capital Input Contribution of Information Technology
0.00
0.50
1.00
1.50
2.00
2.50
1948-73 1973-90 1990-95 1995-00
Annu
al C
ontri
butio
n (%
)
Non-IT Capital Services IT Capital Services
Average annual percentage growth rates, weighted by the income shares.
Capital Input Contribution of Information Technology for OECD CountriesAverage annual percentage growth rates, weighted by income shares
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Australia Canada Finland France Germany Italy Japan UnitedKingdom
United States
Ann
ual c
ontr
ibut
ion
(%)
1990-1995 1995-2000
Note: Latest available IT contribution is 1995-1999 for Finland, Italy, and Japan.
Sources of Gross Domestic Product Growth
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1948-73 1973-90 1990-95 1995-00
Annu
al C
ontri
butio
n (%
)
Labor Input Non-IT Capital Input IT Capital Input Non-IT Production IT Production
Average annual percentage rates of growth, weighted by average nominal income shares.
Output Growth, 1990-95 versus 1995-2000
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Australia Canada Finland France Germany Italy Japan UnitedKingdom
United States
%
1990-95 1995-2000Note: Latest available output growth is 1995-1999 for Finland, Italy, and Japan.
ECONOMICS ON INTERNET TIME: Lessons for Europe.
• Modeling IT and the semiconductor industry: permanent versus transitory contributions to economic growth.
•The Solow Paradox -- we see computers everywhere but in the productivity statistics -- versus the Information Age.
•Equity Valuations and Growth Prospects: accumulation of intangible assets versus irrational exuberance.
•Widening Wage Inequality:capital-skill complementarity versus skill-biased technical change.
