Assessment of ICT Impact on the Formation and Development of Innovative Economy

Assessment of ICT impact on the formation and development of innovative economy

PhD. in Economical Sciences, A.G.Aliyev, A.S.Aliyeva

Institute of Information Technology of ANAS

AZ1141,Azerbaijan Republic,Baku c., B.Vahabzade str.,9


Summary. Issues related to characteristic features and formation issues of innovative economy are researched in this article. The role of ICT in development of new information economy is pointed out. Interrelation between distinctive features and their other traditional production factors of information and knowledge resources such as labor and capital are reviewed. Different approaches to evaluation of effect of ICT sector on economical development are researched. Effect of ICT on durable economical development, as well as increasing of Gross Domestic Product (GDP) and labor productivity are studied. Application specifications of economical-statistic methods and models related to the effect of informatization level to overall economical deevelopment are reviewed.

Key words: information economy, information and knowledge resources, ICT effect, production factors, economical-statistic methods and models.

Introduction. The globalization of economical relations are characteristic features of modern period. In its turn, they affect the rapid development of new innovative economy. Information and innovation economy entered the scientific literacy as a synonim of newly formed economy. Technological development and inovations are the lasting driving force of economic growth. Information and knowledge are the main development factors of the society. Knowlede and information production fields play a significant role in development and competitiveness of countries passing from industrial development stage to postindustrial stage. In other words, in modern period the development of countries depends on scientific fields, as well as technological innovations, and development of new technologies.

Conducted researches demonstrates the direct relation between ICT development and application level and economical development. Despite this, evaluation of ICT of general economical growth and its connection with other production factors remains as a relevant issue.

Effect of ICT on formation of new economy. Main distinctive properties of the new economony include massive expansion of creative, intellectual labor, increasing role and volume of knowledge, development of commication of devices etc. At the same time, development of ICT is a necessary condition for formation and development of information society and relevant economy, as well as innovative economy.

Developmentof ICT provides accessibility of information, new communication devices,organizaton of production processes and many economical activity types. Information communication systems accelerate the globalization of economy by creating connections with international market and global production markets.

Technological innovation is quite important in new ecoomy. Thus, ICT sector in itself is highly productive and its growth affects overall economy. Expansion of ICT to other fields principally changes their character; increases the exploitation level of information technology resources. This finds reflection in increasing productivity growth, as well as growth of GDP. ICT creates new capabilities for collection, processing, storage, presentation, transmission, protection etc of information and knowledge. ICT affects the real economy through ICT production, as well as use of ICT in different fields [4]. This is explained by, transformation of ICT sector to an imporant fields on a global level by developing service sphere. ICT production sector is very imporant for overall GDP growth in real economy, and properties such as rapid technological progress characteric for this field, strong and stable demand, relatively low pirces, increasing quality and growth of product types causes growth of share of this field in GDP.

Information and knowledge resources act as production factor and direct participation form in production process. information and knowledge resources can reduce the demand of to material resources relatively and in total. Formed financial minister of USA U.M.Blumental noted information as the main resource in modern economical activities, i.e. relevant to the significance of labor, capital and labor force in the past [7]. At the same time, information in itself, only posseses potential importance and can demonstrate itself only in relation with other resources.

Alongside with the general specifications of economic resources, informational resources possess the characteristics stemming from specific characteristics of information which causes changes in character of effect on labour productivity and efficiency [6,7]. Russian researcher V.Inozemtsov characterized the specific features of information resources so that if the land and capital are exhaustible, the knowledge can be generated and accumulated unrestrictedly. If land has limited exploiters, the knowledge can be accessible for numerous exploiters [7]. Information communication technologies become the main mean of use of information and knowledge resources.

Current approaches to assessment of effect of ICT sector to economic development.

In modern world innovations and technologies play prominent role in sustainable economic development of every country and increase of productivity. This was remarked by Schumpeter, Solow, Romer and other prominent economists in their works in last century [1].

Several researches were conducted in developed countries among them in USA, countries of Europe, Australia, Japan and etc. regarding investigation of the effect of ICT on economy. Different methods, also production functions were implemented in assessment of effect of ICT on development of economy in these investigations.

Solow used production functions in order to assess the effect of scientific-technological progress on economic development in USA. He concluded that economic growth in USA is related to technological changes rather than labour and capital factors.

The researches in the sphere of effect of investments in computer systems on economic growth of Finland revealed that ICT sector affects the real volume of production more in comparison with other factors of production. In relation with these researches, by using three factor translog common cost function consisting of investment in computer, capital and labour force, American researchers assessed the effect of investments in ICT on economic growth in USA during 1960-1990 years. As a result of researches it is revealed that the almost half of growth of GNP in USA is obtained on account of investments in computer sphere [2].

American economists M.Boskin and L.Lay concluded on their researches that more than 40% of economic growth in developed countries is obtained by technological progress, primarily by implementation of information technologies [5].

The conducted researches regarding the effect of ICT sector on economy, generally on labour productivity in Australia, Canada, Denmark, New Zealand, Ireland and Norway concluded that there is a close relationship between application of ICT and general productivity factor.

Malaysian researchers [2] used production function consisting of capital (CAP) and labour (LAB – human capital) in order to investigate the effect of ICT on economic development in several Asian countries such as Malaysia, Thailand, Singapore, Indonesia, Philippines, Japan, Korea and China based on 1976-2006 data collections. In order to assess the effect of ICT on production growth in Asian countries, new parameter – telecommunication investments (TELINT) parameter was injected into the function. By using the initial data, Hausman test and generalized least squares method (GLS) were used in order to estimate the relationship between the dependant GDP parameter and independent labour, capital and telecommunications parameters. As a result of researches it was once more established that ICT plays a prominent role in economic growth and sustainable economic development, there is a positive correlation between independent CAP, LAB and TELINT and dependant GDP parameters.

As a result of researches conducted in Singapore it is revealed that investments in ICT affect labour productivity significantly [2].

In order to assess the direct effect of ICT on economy by an example of Shanghai province of China, Chinese researchers [3] divided the economy into four sectors and considered ICT sector apart from other three sectors.

Based on the share of ICT in gross domestic product, they investigated the effect of ICT on economy in production level. For this purpose alongside with traditional production factors such as labour and capital, they added ICT as a new production factor to standard Cobb-Douglas function.

As a result of calculations, the elasticity coefficient of ICT factor was estimated as 0.391. It shows that 1% increase in ICT sector results in 0.391% increase in GDP. This guarantees sustainable development of economy.

In less developed countries such as Africa, Latin America and several Asian countries some researches were conducted in order to assess the effect of investments in ICT on economy [4]. For this purpose, by considering also ICT-capital as a production factor alongside with human capital and physical capital, researchers used Cobb-Douglas function in order to investigate the positive effect of investments in ICT on long-term growth of productivity in these countries. Despite the problems with country data, the result of investigations allows to say that investments in ICT affect the economic development of these countries. In special case, 1 unit increase of ICT use causes 0.1% increase of GDP.

Cobb-Douglas production function was applied several times in the example of Azerbaijan. Researchers implemented the assessment of Cobb-Douglas function parameters for analysis of development trends of country’s economy in recent years. For assessment of production function parameters the statistical data of 1995-2005 years was used. As a result of analysis it is revealed that scientific-technological innovations, application of information technologies to economy cause additional 7.4% growth of GDP volume [8].

Conclusions. By using Cobb-Douglas function, different mathematical methods and statistical data of World Bank, it is feasible to assess the effect of ICT, human capital and other resources on economy. Conducted researches show that ICT affects GDP growth positively; ICT is a locomotive of economy and main factor of economic development. By improving Cobb-Douglas function, it is feasible to assess the effect of ICT on different spheres of information society. It can accelerate the expansion of new technologies which play prominent role in construction of new society, competitive economy.


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