ICT Intermediates, Growth and Productivity Spillovers Evidence from Comparison of Growth Effects in German and US Manufacturing Sectors

Recent pre-crisis growth accounting exercises attribute strong productivity growth to increased investments in information and communication technologies (ICT), especially during the mid-1990s. EU-wide stylized facts about a growing US–EU productivity gap are confirmed for Germany, particularly showing no substantially economy-wide effects from ICT for German sectors. Tracing the effect from ICT during the period 1991–2005, this study takes a different view by expanding the concept of value added to gross output, additionally including different types of intermediate inputs. The findings suggest that imported intermediate inputs played a more dominating role in Germany than in the US, particularly imported non-ICT and ICT materials, although domestically-produced ICT materials were important as well. In the US, main driving forces were domesticallyproduced non-ICT services and ICT materials, even though imported ICT materials were on the upraise post 1995. Moreover, there were decisive differences is countries’ TFP growth rates with about twice the size in the US. According to robust econometric analysis there have been strong spillover effects from increasing domestically-produced ICT materials in German TFP growth, while for the US TFP growth originated from increasing imported ICT materials. It will be argued that these different productivity effects stem from different functions of ICT in the production process. However, TFP growth differentials between Germany and the US during 1991 to 2000 are explained to a great extent by strong US TFP growth in the Electrical & Electronic Machinery sector.