Contribution of ICT to the Chinese 信息和通信技术对中国经济增长的贡献.doc

Contribution of ICT to the Chinese 信息和通信技术对中国经济增长的贡献 Economic Growth Almas Heshmati ? and Wanshan Yang The RATIO Institute and Techno-Economics and Policy Program College of Engineering, Seoul National University San 56-1 Shinlim-dong, Kwanak-gu Seoul 151-742, Korea, Phone: ++82-2-880-9141, Fax: ++82-2-880-8389 E-mail: heshmati@snu.ac.kr February 2006 ABSTRACT The view about systematic irrationality of investors and managers in investment with reference to information and communication technology (ICT) with no effects on productivity growth is called productivity paradox. Research suggests that ICT return in developed nations is significant and positive, but not in developing countries. This paper challenges the above conclusion by examining the contribution of ICT to the Chinese economic growth. We investigate the relationship between TFP growth and ICT capital and provide estimation of the returns to ICT investment. The contribution of ICT to economic growth has not been studied earlier for the developing countries like China. The empirical results suggest that China has reaped the benefits of ICT investment. The policy implications for the Chinese ICT investment and development are also discussed. The results add to our understanding of how ICT affects growth in the context of economic development. Keywords: Productivity paradox, ICT, economic development, TFP growth, China JEL Classification Numbers: D24, E22, O47 Corresponding author. The authors would like to thank Amit Kumar Bhandari, Alice Shiu and participants of seminar at TEPP for their comments and suggestions on an earlier version of this paper. 1. INTRODUCTION From the beginning of 1980s, when the information age was initiated, there has been a long-running debate in economic literatures on whether the information and communication technology (ICT) revolution is being paid off in prod