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The Economics of the Digital Society

Edited by Luc Soete and Bas ter Weel

This important book presents a unique body of research into the economics of the digital society. It questions how modern economies have been transformed as a result of digital goods and markets, and explores the policy implications and challenges of this revolution.
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Chapter 12: Unleashing animal spirits: Investment in ICT and economic growth

Eric J. Bartelsman and Jeroen Hinloopen


* Eric J. Bartelsman and Jeroen Hinloopen 12.1 INTRODUCTION The EU countries lag well behind the US in the intensity with which the business sector uses ICT as a factor of production. Further, businesses in the EU produce relatively lower quantities of ICT goods and services, on average. This chapter discusses various possible explanations for the lag in ICT investment for economic performance. A model is developed that links ICT investment to competitive pressure and makes predictions about co-movement of ICT investment and indicators of market dynamics. The empirical results point to a significant effect of the regulatory environment on the share of ICT in total investment spending. It may seem that policy concerns about ICT and the economy should have disappeared along with the New Economy-hype and the overvaluation of ICT-related stocks. However, despite the precipitous drop of the NASDAQ, the technologies being developed and deployed continue to have the potential to alter the economic landscape in years to come. New Economy pundits claim that use of improved information and communications technology (ICT) not only increases the quality and variety of consumer goods and producers’ durable equipment, but also reduces the cost of transactions between many economic agents. Further, the use of ICT may increase the efficiency of the innovative processes taking place within industrialised economies. The potential benefits will accrue to economies with firms that continue to invest in and successfully adopt the new information and communications technologies. In the EU, policy makers are worried...

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