The growth of ICT and industry performance

Publication date: 30 Apr 2003 | Publication type: National Institute Economic Review | Theme: Trade, Investment & Productivity | NIESR Author(s): O'Mahony, M | Journal: National Institute Economic Review No. 184

UK manufacturing productivity has for a long time lagged behind the US. Explanations put forward for the Ôproductivity gap' include disparities in capital stock levels, the quality of the labour force and different rates of technology adoption. The question addressed in this paper is has slower UK up-take of information technology exacerbated the productivity gap. Can this account for the slow down in the manufacturing sector in the mid-1990s, a period when the US experienced substantial growth? Using the growth accounting method and industry data for the period 1988-2000, the paper indicates considerable industry heterogeneity in both the UK and the US, which aggregate sectoral analysis is likely to obscure. The results suggest that whilst the UK continues to lag behind the US in terms of ICT capital shares, differences in rates of growth of ICT capital are minor. Labour quality indicators show positive ICT and non-ICT skilled labour growth and declines in lower skilled categories in both countries, with the UK leading the US in recent years. Thus UK manufacturing has invested significantly in new technology inputs. The paper also shows there are similarities in the cross industry patterns of productivity performance in the two countries but growth rates in the UK are significantly below those in the US across the board. The paper then considers alternative explanations for the slowdown in UK manufacturing productivity in the mid to late 1990s and suggests this may be due to macroeconomic factors peculiar to that period and lags in the adjustments of firms to a changed environment.