ICT development and total factor productivity growth

Koyin Chang, Marc Tomljanovich, Yung-hsiang Ying

Article ID: 3108
Vol 8, Issue 3, 2024

VIEWS - 207 (Abstract) 209 (PDF)


Total factor productivity (TFP) is essential for disentangling the determinants of economic growth, productivity, and the standard of living. Understanding the variations in TFP, however, is greatly challenging because of the many assumptions that comprise the theoretical growth framework. In this paper, we aim to explore the determinants of TFP growth for countries at different stages of information and communication technology (ICT) development. To address the endogenous nature of the associated growth variables, we implement a three-stage-least (3SLS) square panel regression to improve the efficiency and asymptomatic accuracy of the estimators. We find that transmission channels, such as financial openness and trade globalization, have contributed substantially to growth in both advanced and developing countries. However, we also discover that greater financial openness can undermine a country’s TFP growth if the financial system is not sufficiently developed. When time horizons are decomposed into pre-ICT development and post-ICT development periods, a significant crowding-out effect is observed between ICT investment and financial openness in the pre-period, implying that the allocation of resources is critical for countries in the developing stage. Trade and finance policies that are adopted by advanced and developed countries might not be ideal for underdeveloped countries. Discretion in choosing adequate policies regarding financial integration and trade liberalization is advised for these emerging countries.


total factor productivity; ICT development; aging population

Full Text:



Abeliansky, A. L., Barbero, J., & Rodriguez-Crespo, E. (2021). ICTs quality and quantity and the margins of trade. Telecommunications Policy, 45(1), 102056. https://doi.org/10.1016/j.telpol.2020.102056

Acharya, R. C. (2015). ICT use and total factor productivity growth: intangible capital or productive externalities? Oxford Economic Papers, 68(1), 16–39. https://doi.org/10.1093/oep/gpv058

Agénor, P. (2003). Benefits and Costs of International Financial Integration: Theory and Facts. The World Economy, 26(8), 1089–1118. Portico. https://doi.org/10.1111/1467-9701.00564

Aiyar, S., & Ebeke, C. (2016). The Impact of Workforce Aging on European Productivity. IMF Working Papers, 16(238), 1. https://doi.org/10.5089/9781475559729.001

Aizenman, J., & Noy, I. (2009). Endogenous Financial and Trade Openness. Review of Development Economics, 13(2), 175–189. Portico. https://doi.org/10.1111/j.1467-9361.2008.00488.x

Arif-Ur-Rahman, M., & Inaba, K. (2020). Financial integration and total factor productivity: in consideration of different capital controls and foreign direct investment. Journal of Economic Structures, 9(1). https://doi.org/10.1186/s40008-020-00201-9

Ayhan Kose, M., Prasad, E. S., & Terrones, M. E. (2009). Does openness to international financial flows raise productivity growth? Journal of International Money and Finance, 28(4), 554–580. https://doi.org/10.1016/j.jimonfin.2009.01.005

Baily, M. N., & Lawrence, R. Z. (2001). Do We Have a New E-conomy? American Economic Review, 91(2), 308–312. https://doi.org/10.1257/aer.91.2.308

Bakker, B., Ghazanchyan, M., Ho, A., & Nanda, V. (2020). The Lack of Convergence of Latin-America Compared with CESEE. IMF Working Papers, 20(98). https://doi.org/10.5089/9781513547886.001

Basu, S., Fernald, J. (2007). Information and Communication Technology as General-Purpose: Evidence from U.S. Industry Data. Federal Reserve Bank of San Francisco Working Paper Series.

Basu, S., Fernald, J. G., Oulton, N., & Srinivasan, S. (2003). The Case of the Missing Productivity Growth, or Does Information Technology Explain Why Productivity Accelerated in the United States but Not in the United Kingdom. NBER Macroeconomics Annual, 18, 9–82. MIT Press.

Bekaert, G., Harvey, C., Lundblad, C. (2005). Does financial liberalization spur growth? Journal of Financial Economics, 77(1), 3–55. https://doi.org/10.1016/j.jfineco.2004.05.007

Bergeaud, A., Cette, G., & Lecat, R. (2015). Productivity Trends in Advanced Countries between 1890 and 2012. Review of Income and Wealth, 62(3), 420–444. Portico. https://doi.org/10.1111/roiw.12185

Bloom, N., Brynjolfsson, E., Foster, L., Jarmin, R., Patnaik, M., Saporta-Eksten, I., & Van Reenen, J. (2019). What Drives Differences in Management Practices? American Economic Review, 109(5), 1648–1683. https://doi.org/10.1257/aer.20170491

Bollou, F., & Ngwenyama, O. (2008). Are ICT investments paying off in Africa? An analysis of total factor productivity in six West African countries from 1995 to 2002. Information Technology for Development, 14(4), 294–307. https://doi.org/10.1002/itdj.20089

Bonfiglioli, A. (2008). Financial integration, productivity and capital accumulation. Journal of International Economics, 76(2), 337–355. https://doi.org/10.1016/j.jinteco.2008.08.001

Bos, J. W. B., Economidou, C., & Zhang, L. (2019). Specialization in the presence of trade and financial openness. Empirical Economics, 58(6), 2783–2816. https://doi.org/10.1007/s00181-019-01652-1

Byrne, D. M., Fernald, J. G., & Reinsdorf, M. B. (2016). Does the United States Have a Productivity Slowdown or a Measurement Problem? Brookings Papers on Economic Activity, 2016(1), 109–182. https://doi.org/10.1353/eca.2016.0014

Byrne, David and Carlo Corrado. 2017. “ICT Prices and ICT Services: What do they tell us about Productivity and Technology? Finance and Economics Discussion Series 2017-015. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2017.015

Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Inflows of Capital to Developing Countries in the 1990s. Journal of Economic Perspectives, 10(2), 123–139. https://doi.org/10.1257/jep.10.2.123

Cardarelli, R., & Lusinyan, L. (2015). U.S. Total Factor Productivity Slowdown: Evidence from the U.S. States. IMF Working Papers, 15(116), 1. https://doi.org/10.5089/9781513520834.001

Cerdeiro, D., & Komaromi, A. (2019). Financial Openness and Capital Inflows to Emerging Markets. IMF Working Papers, 2019(194). https://doi.org/10.5089/9781513509839.001

Cette, G., Fernald, J., & Mojon, B. (2016). The pre-Great Recession slowdown in productivity. European Economic Review, 88, 3–20. https://doi.org/10.1016/j.euroecorev.2016.03.012

Chang, K., Kim, Y., Tomljanovich, M., & Ying, Y.-H. (2013). Do political parties foster business cycles? An examination of developed economies. Journal of Comparative Economics, 41(1), 212–226. https://doi.org/10.1016/j.jce.2012.04.005

Christopoulos, D., & McAdam, P. (2013). Openness, Efficiency and Technology: An Industry Assessment. Scottish Journal of Political Economy, 60(1), 56–70. Portico. https://doi.org/10.1111/sjpe.12002

Coe, D. T., & Helpman, E. (1995). International R&D spillovers. European Economic Review, 39(5), 859–887. https://doi.org/10.1016/0014-2921(94)00100-e

Coe, D. T., Helpman, E., & Hoffmaister, A. W. (2009). International R&D spillovers and institutions. European Economic Review, 53(7), 723–741. https://doi.org/10.1016/j.euroecorev.2009.02.005

Connolly, M. (2003). The dual nature of trade: measuring its impact on imitation and growth. Journal of Development Economics, 72(1), 31–55. https://doi.org/10.1016/s0304-3878(03)00067-1

Costello, D. M. (1993). A Cross-Country, Cross-Industry Comparison of Productivity Growth. Journal of Political Economy, 101(2), 207–222. https://doi.org/10.1086/261873

Dahl, C. M., Kongsted, H. C., & Sørensen, A. (2010). ICT and productivity growth in the 1990s: panel data evidence on Europe. Empirical Economics, 40(1), 141–164. https://doi.org/10.1007/s00181-010-0421-4

Daude, C., & Fernandez-Arias, E. (2010). On the Role of Productivity and Factor Accumulation in Economic Development in Latin America and the Caribbean. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1817273

Dell’Ariccia, G., Mauro, P., Faria, A., et al. (2008). Reaping the Benefits of Financial Globalization. International Monetary Fund.

Diallo, I. (2020). XTENDOTHRESDPD: Stata module to estimate a dynamic panel data threshold effects model with endogenous regressors.

Dogan, E., & Wong, K. N. (2020). Sources and Channels of International Knowledge Spillovers in ASEAN‐5: The Role of Institutional Quality. Journal of International Development, 32(4), 470–486. Portico. https://doi.org/10.1002/jid.3464

Dougherty, C., & Jorgenson, D. W. (1997). There Is No Silver Bullet: Investment and Growth in the G7. National Institute Economic Review, 162, 57–74. https://doi.org/10.1177/002795019716200105

Dougherty, C., Jorgenson, D. W. (1996). International Comparison of Sources of Growth. American Economic Review. 86, 25–29.

Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091–1110. https://doi.org/10.1080/00036840500392078

Easterly, W. (2001). What have we learned from a decade of empirical research on growth? It’s Not Factor Accumulation: Stylized Facts and Growth Models. The World Bank Economic Review, 15(2), 177–219. https://doi.org/10.1093/wber/15.2.177

Edquist, H., & Henrekson, M. (2017). Do R&D and ICT affect total factor productivity growth differently? Telecommunications Policy, 41(2), 106–119. https://doi.org/10.1016/j.telpol.2016.11.010

Edwards, S. (1998). Openness, Productivity and Growth: What Do We Really Know? The Economic Journal, 108(447), 383–398. https://doi.org/10.1111/1468-0297.00293

Edwards, S. (2007). Capital Controls, Sudden Stops, and Current Account Reversals. In: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences. National Bureau of Economic Research, Inc. pp. 73–120.

Edwards, S. Capital Controls and Capital Flows in Emerging Economies: Policies, Practice, and Consequences. University of Chicago Press.

Eggertsson, G. B., Lancastre, M., & Summers, L. H. (2019). Aging, Output Per Capita, and Secular Stagnation. American Economic Review: Insights, 1(3), 325–342. https://doi.org/10.1257/aeri.20180383

Eichengreen, B., Gullapalli, R., & Panizza, U. (2011). Capital account liberalization, financial development and industry growth: A synthetic view. Journal of International Money and Finance, 30(6), 1090–1106. https://doi.org/10.1016/j.jimonfin.2011.06.007

Eichengreen, B., Park, D., & Shin, K. (2015). The Global Productivity Slump: Common and Country-Specific Factors. National Bureau of Economic Research. https://doi.org/10.3386/w21556

Estrada, G. B., Park, D., & Ramayandi, A. (2015). Financial Development, Financial Openness, and Economic Growth. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2707518

Fernald, J. (2014). Productivity and Potential Output Before, During, and After the Great Recession. National Bureau of Economic Research. https://doi.org/10.3386/w20248

Fernández-Arias, E., Fernández-Arias, N. (2021). The Latin American Growth Shortfall: Productivity and Inequality. Background Paper for the UNDP LAC Regional Human Development Report 2021.

Feyrer, J. (2007). Demographics and Productivity. Review of Economics and Statistics, 89(1), 100–109. https://doi.org/10.1162/rest.89.1.100

Feyrer, J. (2008). Aggregate Evidence on the Link Between Demographics and Productivity. Population and Development Review, 34, 78–99.

Fratzscher, M. (2011). Capital Flows, Push versus Pull Factors and the Global Financial Crisis. National Bureau of Economic Research. https://doi.org/10.3386/w17357

Furman, J. (2015). Productivity Growth in the Advanced Economies: The Past, the Present, and Lessons for the Future. Peterson Institute for International Economics.

Gnangnon, S. K. (2020). Effect of the Internet on Services Export Diversification. Journal of Economic Integration, 35(3), 519–558. https://doi.org/10.11130/jei.2020.35.3.519

Gordon, R. (2012). Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. National Bureau of Economic Research. https://doi.org/10.3386/w18315

Gordon, R. (2013). U.S. Productivity Growth: The Slowdown Has Returned After A Temporary Revival. International Productivity Monitor, 25, 13–19.

Gupta, N., & Yuan, K. (2009). On the Growth Effect of Stock Market Liberalizations. Review of Financial Studies, 22(11), 4715–4752. https://doi.org/10.1093/rfs/hhp001

Gygli, S., Haelg, F., Potrafke, N., & Sturm, J.-E. (2019). The KOF Globalisation Index – revisited. The Review of International Organizations, 14(3), 543–574. https://doi.org/10.1007/s11558-019-09344-2

Haider, F., Kunst, R., & Wirl, F. (2020). Total factor productivity, its components and drivers. Empirica, 48(2), 283–327. https://doi.org/10.1007/s10663-020-09476-4

Hall, J. C., Sobel, R. S., & Crowley, G. R. (2010). Institutions, Capital, and Growth. Southern Economic Journal, 77(2), 385–405. Portico. https://doi.org/10.4284/sej.2010.77.2.385

Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345–368. https://doi.org/10.1016/s0304-4076(99)00025-1

Henry, P. B. (2007). Capital Account Liberalization: Theory, Evidence, and Speculation. Journal of Economic Literature, 45(4), 887–935. https://doi.org/10.1257/jel.45.4.887

Ilmakunnas, P., & Miyakoshi, T. (2013). What are the drivers of TFP in the Aging Economy? Aging labor and ICT capital. Journal of Comparative Economics, 41(1), 201–211. https://doi.org/10.1016/j.jce.2012.04.003

Imbs, J. (2004). Trade, Finance, Specialization, and Synchronization. Review of Economics and Statistics, 86(3), 723–734. https://doi.org/10.1162/0034653041811707

Isaksson, A. (2007). Determinants of Total Factor Productivity: A Literature Review. United Nations Industrial Development Organization (UNIDO).

Islam, N. (1999). INTERNATIONAL COMPARISON OF TOTAL FACTOR PRODUCTIVITY: A REVIEW. Review of Income and Wealth, 45(4), 493–518. Portico. https://doi.org/10.1111/j.1475-4991.1999.tb00362.x

Jones, C. I. (1999). Growth: With or Without Scale Effects? American Economic Review, 89(2), 139–144. https://doi.org/10.1257/aer.89.2.139

Jorgenson, D. W., Ho, M. S., & Stiroh, K. J. (2008). A Retrospective Look at the U.S. Productivity Growth Resurgence. Journal of Economic Perspectives, 22(1), 3–24. https://doi.org/10.1257/jep.22.1.3

Jorgenson, D., Mun, H., Kevin, S. (2005). Productivity: Information Technology and the American Growth Resurgence. Volume 3, MIT Press.

Keller, W., & Yeaple, S. R. (2009). Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States. Review of Economics and Statistics, 91(4), 821–831. https://doi.org/10.1162/rest.91.4.821

Khan, A., Hassan, M. K., Paltrinieri, A., & Bahoo, S. (2021). Trade, financial openness and dual banking economies: Evidence from GCC Region. Journal of Multinational Financial Management, 62, 100693. https://doi.org/10.1016/j.mulfin.2021.100693

Kim, D.-H., Lin, S.-C., & Suen, Y.-B. (2010). Are Financial Development and Trade Openness Complements or Substitutes? Southern Economic Journal, 76(3), 827–845. Portico. https://doi.org/10.4284/sej.2010.76.3.827

Kim, J., & Park, J. (2017). The Role of Total Factor Productivity Growth in Middle-Income Countries. ADB Economics Working Paper Series. https://doi.org/10.22617/wps179136-2

Kim, Y. E., & Loayza, N. V. (2019). Productivity Growth: Patterns and Determinants Across the World. World Bank, Washington, DC. https://doi.org/10.1596/1813-9450-8852

Klein, M. (2005). Capital Account Liberalization, Institutional Quality and Economic Growth: Theory and Evidence. National Bureau of Economic Research. https://doi.org/10.3386/w11112

Kose, M. A., Prasad, E. S., & Terrones, M. E. (2006). How do trade and financial integration affect the relationship between growth and volatility? Journal of International Economics, 69(1), 176–202. https://doi.org/10.1016/j.jinteco.2005.05.009

Krammer, S. M. S. (2010). International R&D spillovers in emerging markets: The impact of trade and foreign direct investment. The Journal of International Trade & Economic Development, 19(4), 591–623. https://doi.org/10.1080/09638190902792464

Lane, P. R., & Milesi-Ferretti, G. M. (2006). The external wealth of nations mark II: revised and extended estimates of foreign assets and liabilities, 1970-2004. IMF Working Paper.

Le Clech, N., & Guevara-Pérez, J. C. (2023). Latin America and the Caribbean’s Productivity: The Role of Pro-Market Policies, Institutions, Infrastructure, and Natural Resource Endowments. Economies, 11(5), 142. https://doi.org/10.3390/economies11050142

Matteucci, N., O’Mahony, M., Robinson, C., & Zwick, T. (2005). Productivity, workplace performance and ICT: industry and firm‐level evidence for Europe and the US. Scottish Journal of Political Economy, 52(3), 359–386. Portico. https://doi.org/10.1111/j.0036-9292.2005.00349.x

Miller, B., & Atkinson, R. D. (2014). Raising European Productivity Growth Through ICT. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3079844

Miller, S. M., & Upadhyay, M. P. (2000). The effects of openness, trade orientation, and human capital on total factor productivity. Journal of Development Economics, 63(2), 399–423. https://doi.org/10.1016/s0304-3878(00)00112-7

Mishkin, F. S. (2006). The Next Great Globalization. https://doi.org/10.1515/9781400829446

Mitton, T. (2006). Stock market liberalization and operating performance at the firm level. Journal of Financial Economics, 81(3), 625–647. https://doi.org/10.1016/j.jfineco.2005.09.001

Obstfeld, M. (2009). International Finance and Growth in Developing Countries: What Have We Learned? IMF Staff Papers, 56(1), 63–111. https://doi.org/10.1057/imfsp.2008.32

Oliner, S. D., & Sichel, D. E. (2000). The Resurgence of Growth in the Late 1990s: Is Information Technology the Story? Journal of Economic Perspectives, 14(4), 3–22. https://doi.org/10.1257/jep.14.4.3

Parente, S. L., & Prescott, E. C. (1999). Monopoly Rights: A Barrier to Riches. American Economic Review, 89(5), 1216–1233. https://doi.org/10.1257/aer.89.5.1216

Philip, R., Lane, G., Milesi-Ferretti, M. (2017). International Financial Integration in the Aftermath of the Global Financial Crisis. Available online: https://www.imf.org/-/media/Files/Publications/WP/2017/wp17115.ashx (accessed on 10 May 2017).

Prasad, E., Rajan, R., Zingales, L. (2007). Foreign Capital and Economic Growth. NBER Working Paper.

Prasad, E., Rogoff, K., Shang-Jin, W., Kose, A. (2003). Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. International Monetary Fund.

Pratap, S., & Urrutia, C. (2012). Financial frictions and total factor productivity: Accounting for the real effects of financial crises. Review of Economic Dynamics, 15(3), 336–358. https://doi.org/10.1016/j.red.2011.09.003

Quinn, D. P., & Toyoda, A. M. (2008). Does Capital Account Liberalization Lead to Growth? Review of Financial Studies, 21(3), 1403–1449. https://doi.org/10.1093/rfs/hhn034

Seo, M. H., Kim, S., & Kim, Y.-J. (2019). Estimation of dynamic panel threshold model using Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 19(3), 685–697. https://doi.org/10.1177/1536867x19874243

Shackleton, R. (2013). Total Factor productivity growth in historical perspective, Working Paper Series. Congressional Budget Office, Washington, D.C.

Spiezia, V. (2012). ICT investments and productivity. OECD Journal: Economic Studies, 2012(1), 199–211. https://doi.org/10.1787/eco_studies-2012-5k8xdhj4tv0t

Steiner, A. C., & Saadma, T. (2016). Measuring De Facto Financial Openness: A New Index. VfS Annual Conference 2016 (Augsburg): Demographic Change 145575, Verein für Socialpolitik/German Economic Association.

Stiroh, K. J. (2002). Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say? American Economic Review, 92(5), 1559–1576. https://doi.org/10.1257/000282802762024638

Summers, L. H. (2014). U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound. Business Economics, 49(2), 65–73. https://doi.org/10.1057/be.2014.13

Tebaldi, E. (2016). The Dynamics of Total Factor Productivity and Institutions. Journal of Economic Development, 41(4), 1–25.

van Ark, B., O’Mahony, M., & Timmer, M. P. (2008). The Productivity Gap between Europe and the United States: Trends and Causes. Journal of Economic Perspectives, 22(1), 25–44. https://doi.org/10.1257/jep.22.1.25

Wang, Q. (2015). Fixed-Effect Panel Threshold Model using Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 15(1), 121–134. https://doi.org/10.1177/1536867x1501500108

Wolff, E. (1991). Capital Formation and Productivity Convergence Over the Long Term. American Economic Review, 81(3), 565–579.

Zhang, C., Zhu, Y., & Lu, Z. (2015). Trade openness, financial openness, and financial development in China. Journal of International Money and Finance, 59, 287–309. https://doi.org/10.1016/j.jimonfin.2015.07.010

DOI: https://doi.org/10.24294/jipd.v8i3.3108


  • There are currently no refbacks.

Copyright (c) 2024 Koyin Chang, Marc Tomljanovich, Yung-hsiang Ying

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.