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Economic impact of Information and Communications Technology – identifying its restraints and exploring its potential

Economic impact of Information and Communications Technology – identifying its restraints and exploring its potential What is the overall impact of Information and Communications Technology (ICT) on company and industry performance as well as the economy in general that has been witnessed over the last two decades? This chapter deals with theoretical approaches and empirical research related to the topic which has intrigued economists ever since R. Solow's statement 'We see computers everywhere except in productivity statistics' aroused the interest and debate concerning the impact of ICT on growth and productivity. The hypotheses regarding the economic impact of ICT will be discussed followed by a conclusion arising from a large number of empirical studies. There have been three hypotheses regarding the overall impact of ICT on growth and productivity. According to the first hypothesis, growth and productivity are stimulated by investment in ICT ; according to the second hypothesis, growth and productivity are stimulated by using ICT ; whereas according to the third hypothesis, ICT has no significant impact on economy. While the initial wave of research was based on quantitative indicators of effects of ICT investment, in the second stage a shift towards a qualitative approach was made, taking into consideration the complementary nature of investments and factors such as organizational change, human capital accumulation, quality of work effects as well as investment into research and development. Research has shown that ICT increases work productivity via three mechanisms. The first mechanism is the impact via production in the ICT sector. The ICT sector, which consists of two segments – manufacturing and services – contributes to growth in countries in which it is growing faster than the rest of the economy. This is true even despite the power of the ICT sector in those countries which, quantitatively speaking, is relatively small owing to limited markets, examples of which include Australia, Finland and Ireland. The other mechanism is using ICT in business activities. The third way is technological spillover. This chapter discusses a research conducted in Croatia concerning the size of the ICT sector and company performance. The research shows that the ICT sector productivity is above the average when compared to the Croatian economy in general. High entry rates and high survival rates are indicators of entrepreneurial potential and market growth that tend to accompany the initial stage of the ICT sector development. Considering the ever greater significance of entrepreneurship and the inevitable role of ICT, this chapter will also examine the potential impact of ICT on entrepreneurship. The latter has been acknowledged as one of the generators of growth and recognized as such by policy makers. In recent literature, apart from capital, work and knowledge capital, entrepreneurship capital appears as a factor of growth. Since entrepreneurship on the demand side is a major factor in technological change, we shall attempt to propose possible avenues of research into ICT potential for entrepreneurship. There are two ways in which ICT can benefit entrepreneurship development. One of them is through entrepreneurship in the ICT sector which, owing to the nature of technology, shows a high level of innovativeness, while the increase in demand opens up the possibility for the entry of new businesses. The other is through the mechanism of using ICT and spillover effects, i.e., network effects. From the perspective of spatial analysis of development it is possible to examine the impact of ICT on regional development. It is interesting to analyze regional development, as a particularly widely supported development model in the European Union, in the light of the impact of ICT on it as well as of the impact of neighbouring regions on regional development through the spillover process. Finally, guidelines for the exploitation and exploration of the ICT potential for countries of varying experience and achieved level of development are discussed in the conclusion.

ict, growth, spillover, entrepreneurship

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