Knowledge for Growth – Industrial Research & Innovation (IRI)
The Impact of ICT on the
Growth of the Service
Industries
CONTRIBUTED PAPER FOR THE 2007 CONFERENCE ON
CORPORATE R&D (CONCORD)
New and emerging issues in corporate R&D
File name: Author: Status: Last updated: Organisation: Koson Sapprasert ­ ICT RD Services Koson Sapprasert Draft to be presented at the CONCORD conference 2007 31.8.2007 Centre for Technology, Innovation and Culture (TIK), University of Oslo Page 1 of 30 The Impact of ICT on the Growth of the Service Industries TABLE OF CONTENTS
1 ­ Introduction ................................................................................................................3 2 ­ Theoretical Overview and Prior Studies ..................................................................4 2.1 ICT as the Key Technology for Innovation and Growth in Services .................4 2.2 Prior research on the ICT & Performance ...........................................................7 3 ­ Analytical Framework ................................................................................................8 4 ­ Empirical Analysis ...................................................................................................10 4.1 Descriptive Statistics ..........................................................................................10 4.2 Econometric Analysis .........................................................................................13 5 ­ Major Findings and Concluding Remarks..............................................................20 6 ­ References................................................................................................................21
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The Impact of ICT on the Growth of the Service Industries 1 ­ Introduction The service sector is now a major component in the world economy particularly in most developed countries. By the turn of the twenty­first century, while there had been a downturn to manufacturing, services had contributed more than two­thirds of the value added in OECD countries and has hitherto shown no sign of slumping [Eurostat, 2003]. This fact calls for serious attention to discovering the driving force behind the successful growth of the service industries. Following the neo­Schumpeterian literature, innovation could be seen as the main driving force behind economic performance and a number of researches [See Gershuny and Miles, 1983; Barras, 1990; Evangelista, 2000; Miles, 2005] have found the productive relationship between innovation and growth in services, ranging from micro to macro level. Despite other indispensable factors, both technological innovations such as Information and Communication Technology (ICT) and non­technological innovations such as organisational changes have fruitfully been used to explain the outstanding upswing of the service industries. The main hypothesis of this investigation is accordingly: ICT, as the chief economic driver in the present era, is one of the key factors for the rise of the service industries. This study focuses on how research and development in ICT (‘ICT R&D’) combined with non­technological innovations affect the growth of the service industries using the Norwegian firm­level data as analysis. The paper is organised in five chapters. Following the introduction, chapter 2 continues with the main hypothesis, theories and explanation on how ICT may be used to explain the outstanding growth of the service sector, with an emphasis on the concept of ”techno­economic paradigm” [Freeman and Perez, 1988] combined with a juxtaposition between characteristics of ICT and services. The chapter ends by discussing of earlier studies on the effect of ICT on economic performance. Chapter 3 presents the integrated dataset and analytical framework. Chapter 4 explores the role played by ICT R&D in explaining the growth of service firms through the use of descriptive statistics as well as econometric analysis. Chapter 5 sums up empirical findings and ends with conclusions drawn from the research.
Page 3 of 30 The Impact of ICT on the Growth of the Service Industries 2 ­ Theoretical Overview and Prior Studies 2.1 ICT as the Key Technology for Innovation and Growth in Services Since the 1 st industrial revolution in the 1840s, the manufacturing sector had been the major contributor to the world economy. The service sector started to play a more important role thereafter during the 1960s and innovation in services has consequently been of crucial interest among economists and scholars of technological change [e.g., Barras, 1986; Andersen et al., 2000; Metcalfe and Miles, 2000]. In particular, it gained greater attention in the 1990s when a large number of major research projects on service innovation were launched and some services started to be included in Research and Development (R&D), and Innovation Surveys. This increased coverage of service firms has hitherto been fostering the study of innovation in services that leads more precise understanding in this area. Gallouj [2002] classifies a growing literature on service innovation into three main categories: (i) Technologist approach, which concerns innovation with the introduction and diffusion of new technologies into services that may improve, for example, productivity and economic performance; (ii) Service oriented approach which argues that innovation in service and manufacturing industries are distinctly different and emphasises on the ”peculiarity” of services in connection with, e.g., non­technological innovation; and (iii) Integrative approach investigates the boundary between goods and services, and develops a framework to bridge the dichotomous gap between them. Many of recent works take account of technological perspective since various supportive technologies do in fact have a great impact on services [Gallouj, 1994]. So does this study that takes the route of the technologist approach by particularly considering that one of the major reasons for the surprising upsurge of the service industries in the last few decades could be related to the degree of innovation in services 1 paralleled with the rise of the ”information society” [Castells, 1998]. A number of works such as by Barras [1986, 1990], Evangelista [2000], Tether et al. [2001] and Miles [2005] 1 However, since non­technological innovations are of great importance when it comes to dealing with innovation in services, the analysis in this paper additionally, in accordance with the Service oriented approach, investigates the impact of this intangible factor on the growth of service firms. See below in Chapter 3.
Page 4 of 30 The Impact of ICT on the Growth of the Service Industries underscore the significance of innovation in services as an interesting area of research. Evidences illustrate that most services have been actively engaged in innovation and many of them have been found to be greatly innovative. In addition, numerous valuable efforts further point to the importance of innovation in services that has been conducive to the ”service economy” in the last few decades [e.g., Fuchs, 1968; Stanback, 1979; 2 Gershuny and Miles, 1983]. Despite their different views on service innovation, all these fruitful attempts most importantly point out that, on the one hand, most services are becoming an important component in the innovation system while on the other hand; innovation in services is recognised as a decisive factor for the competitiveness and flourishing growth of the service sector. The important question is, why have the results only shown up in the last few decades? The answer to this lies in the identities and characteristics of sector (services) and their key driver (ICT, as conferred by Licht et al. [1999] as the most important technology for innovation in services). According to Malerba [2004], a considerable difference in the sectoral growth and performance can be explained by the fact that sectors differ significantly in terms of characteristics, sources of innovation, the link and relationship among actors involved, and relevant institutions. The hypothesis of this study is accordingly based on the compatible characteristics between the specific source of innovation (ICT) and sector (services) that complement each other and lead to the outstanding growth of the service industries. As pointed out by Miles [2005], services are typically interactive, involving immense communication between service suppliers and clients in all phases of service activity. Most of service industries are ”information intensive”, with a preponderance of communicative and transactional operations. Thus, innovations may be focused on this interaction as much as on conventional product and process features. This ”ICT­friendly” atmosphere is an important characteristic of the service industries and the result has clearly presented the rapid growth of services after they have having merged with ICT in the last few decades. As Gershuny and Miles [1983] point out, ICT changes services’ cost, output and quality, owing to ”information” components of most services, which were the ideal breeding ground for the exploitation of ICT. The evidence from, for instance, OECD [2000] shows that services are major users and adopters of new 2 See also Hauknes [1996] for a discussion on analytic approaches of service economy.
Page 5 of 30 The Impact of ICT on the Growth of the Service Industries technologies especially ICT seen as the chief enabler of their enormous improvement. ICT may thus be regarded as the most important technology for innovation in services that has consequently resulted in their better economic performance [Licht et al., 1999]. Reference is made here to the concept of ”techno­economic paradigm” inspired by the study of the long (Kondratiev) wave of technological change [Schumpeter, 1939] as it would fill the gap in this hypothesis. Freeman and Perez [1988] define a techno­economic paradigm as an introduction and diffusion of new key technologies that occurs and follows the same pattern over time. Such paradigm in a different period relies on the diffusion and utilisation of the new core technology input in many products and processes throughout the economic system, i.e., the growth is based on inter alia this key technology that stimulates the rise of new product and process innovation as well as of the new industries. ICT has been compared to other great innovations in previous paradigms like the steam engine (1840s­1890s) and electricity (1890s­1940s). Momentously, the fourth wave of technical change (1940s­1990s), characterised as the regime of ”mass production”, was the golden age of the manufacturing industries. By the end of the 1990s, it gave way to the upswing of the fifth successive wave of technological paradigm that came with the innovation of ICT [Freeman and Louca, 2002], seen as the time when the manufacturing industries took a back seat to the services that have arisen by the ICT revolution in the age 3 of ”mass servuction”. ICT in the age of mass servuction duly supports characteristics of the service industries. As Evangelista [2000] points out, the information­based characteristics of services make ICT relatively compatible, so the generation and use of ICT play a vital role in service firms’ innovation activities and in boosting their performances. One plausible reason is that a fundamental technological platform can be constituted on a basis of ICT where new services can be more optimally innovated [Barras, 1986]. And this significance of ICT as a major driver of services can be utterly acknowledged as it has certainly led to the service sector reducing their ”productivity gap” (and nowadays even outperforming) relative to the manufacturing sector [OECD, 1996]. Although other factors are also essential for the performance, competitiveness and growth of firms and industries, it is argued in this paper that this reliance may also be placed on the dynamic capabilities to go 3 As ‘mass production’ has been applied as a characteristic of the previous (1940s­1990s) techno­economic paradigm [Freeman and Louca, 2002], this study introduces and applies the term ‘mass servuction’ for the present paradigm which bears a characteristic as the mass degree of service production.
Page 6 of 30 The Impact of ICT on the Growth of the Service Industries through and reap the fruits of the waves of technological innovation. The main conjecture here is therefore: ICT, as the main driving force of the present ”techno­economic paradigm”, is one of the major factors for the upsurge of the service industries. 2.2 Prior research on the ICT & Performance According to a number of prior studies, several countries have displayed impressive economic growth with the aid of ICT as illustrated hereon. For example, regarding results obtained from the US [Jorgenson and Stiroh, 2000; Council of Economic Advisors, 2001; Oliner and Sichel, 2001], labour productivity revived in the 1990s with a significant acceleration during the period 1995­2000, and ICT capital input accounted for more than one fifth of GDP growth throughout the decade. The impact of ICT on growth was also significant in Australia [Parham et al., 2001], Canada [Armstrong et al., 2002], Korea [Kim, 2002], United Kingdom [Oulton, 2002], Finland [Jalava and Pohjola, 2001] and the Netherlands [Van der Wiel, 2001a]. Recent work by the OECD further substantiates ICT as one of the key drivers of the rapid growth for economies, and the service sector is the main consumer of ICT [OECD, 2001]. Evidence from this study underscores the relationship between the growing economic importance of ICT and mounting demand for ICT­intensive services, which is seen as one of the factors driving the increasing weight of services in the economy. The relevance of ICT is due to the fact that many services process and diffuse information in abundance, such as the financial service and telecommunication industry. So advances in ICT that allow more information to be codified and transferred, and the increasing move into knowledge technologies have expanded the scope for ICT use in many services [Pilat, 2001]. One of the strongest evidences for the impact of ICT has been illustrated as coming from the firm­level analysis that is confirmed to a number of developed countries [OECD, 2003]. Most of these studies use a combination of growth accounting methods and econometric models to examine samples of industries and firms. For example, Gretton et al. [2002], studying firm­level data from the Australian Business Longitudinal Survey, found positive and significant links between the use of ICT and growth in both manufacturing and service sector. Brynjolfsson and Hitt [2003], investigating US firm­level data, proved that ICT has a solid impact on productivity. Pilat and Wolfl [2004] examined the role of ICT­ producer and key ICT­consumer industries in explaining overall productivity growth in
Page 7 of 30 The Impact of ICT on the Growth of the Service Industries OECD countries; they found that ICT­producer industries play the most significant role in Finland, Ireland, and Korea whereas ICT­consumer industries in some countries, remarkably the US and Australia, had an impressive growth in the second half of the 1990s. Hempell et al. [2004] analysed comparable panel data of the Dutch and German firms in the service industries and found that ICT capital deepening and innovation have complementary impact on productivity. The foregoing prior researches highlight evidences which suggest that ICT might have a vital role in supporting growth and performance of all industries, including manufacturing and service. However, specific research on how ICT particularly affects the service industries at the firm level is still scarce, especially in Scandinavian countries such as Norway. This paper is therefore devoted to add to existing literature some coherence about the relationship between ICT and performance of the Norwegian service industries. Emphasis is placed on the analysis of the growth of service firms in consequence of ICT R&D intensity. Other non­technological factors are taken into account and manufacturing firms also serve as a benchmark. The question as to what extent ICT as well as other types of innovation play a role in explaining the growth of firms in the service industries still needs a sturdy empirical evidence to answer. This paper is said to be one among the few analyses in the area of service innovation and the first in Norway that investigates the impact of ICT on the growth of the service industries on a basis of firm­level data. The firm­level approach applied in this paper aspires to add to existing literature in this field the evidence regarding the effect of ICT on the productivity and profitability growth of the Norwegian service firms. 3 ­ Analytical Framework This study aims to highlight the effect that ICT has on the growth of the service industries using a quantitative analysis of the novel dataset of firms in Norway. The empirical data for the research is an integration of the Norwegian Community Innovation Survey (the Norwegian CIS3 data), annual accounts of firms and the R&D survey from Statistics Norway (1998­2003). CIS3 provides records regarding innovation activities and categorical information such as firm size and industry. Annual accounts of the Norwegian firms allow this study to attain expected economic indicators, which are productivity and profitability growth. Data from the R&D survey supplies the most crucial information, namely, ICT R&D
Page 8 of 30 The Impact of ICT on the Growth of the Service Industries intensity. These three statistical data sources are successfully integrated and used to analyse how ICT leads to the growth of firms in the Norwegian service industries. Prior researches measured ICT intensity in different ways, for example, share of ICT over total investment [e.g., Dunne et al., 2001; Doms et al., 2004], ICT expenditure per employee [e.g., Cainelli et al., 2004], share of labour equipped with ICT [e.g., Maliranta and Rouvinen, 2004]. Rather, this study applies the share of ICT in R&D expenditure in the analysis as corresponding to prior works that investigate the productive relationship between innovation and growth by analysing R&D data. Since Solow’s [1957] decomposition of economic growth, many studies have similarly emphasised on the factors that underline the productivity residual, that part of output growth not explained by changes in factor inputs. R&D investment is seen as one of the key factors and the analyses of the relationship between R&D and firm’s performance have played a vital role in the economic growth literature [See Griliches, 1988; Grossman and Helpman, 1991; Coe and Helpman, 1995]. The relevance of R&D could be explained by the fact that many firms invest in R&D even when the majority of fruitful findings already spill out in the public domain [Cohen and Levinthal, 1989]. This is because, on the one hand, R&D allows the firm to gain a first mover advantage in exploiting technologies. It may also allow firms to be rapid followers in the face of spillovers from competitor’s innovations. Thus, it would seem that R&D effort might be seen as one of the most essential factors for the successful development of the firm which, as a result leads to the firm’s growth and better performance. This argument stresses that data on R&D expenditure could accordingly be considered as a good source for assessing the impact of ICT on the firm’s economic performance. On the output side, the unique integrated dataset of CIS3, R&D survey and annual accounts of the Norwegian firms allows this study a good measurement for firm’s economic performance, namely productivity and profitability growth. As commonly applied 4 in prior researches, productivity and profitability are calculated from turnover and profit divided by the number of employee, respectively. Furthermore, non­technological factors are taken into account in order to examine their complementary effect. As Bresnahan et al. [2002] point out, firms cannot simply plug in computers and achieve service quality or efficiency gains. On contrary, they must go through a process of reorganisation and launch
Page 9 of 30 The Impact of ICT on the Growth of the Service Industries considerable changes to their products and processes. Success could be obtained by implementing ICT jointly with the reinforcement of organisational changes [Brynjolfsson et al., 1997]. This study therefore takes advantage of firm­level data as it has remarkable measurement advantages for examining intangible organisational investments and service innovation associated with ICT. As Brynjolfsson and Hitt [2000] argue, these non­ technological factors could not be well captured by traditional macroeconomic measurements. In contrast, their economic contributions are more proper to be understated in the micro level. This analysis accordingly includes essential non­ technological innovation factors which are: (i) Strategic innovation refers to an implementation of new or significantly changed corporate strategies; (ii) Managerial innovation means to carry out advanced management techniques within the enterprise; (iii) Organisational innovation denotes an implementation of new or significantly changed organisational structure; (iv) Marketing innovation represents a significant change in enterprise’s marketing concepts/strategies; and (v) Aesthetic innovation characterises significant changes in the aesthetic appearance or design or other subjective changes in the product. Variables for all these five non­technological innovations have been obtained from the CIS3 data and the results of these supporting factors are demonstrated in the next chapter. 5 4 ­ Empirical Analysis 4.1 Descriptive Statistics Table 1 demonstrates descriptive statistics for ICT R&D intensity and economic performance indicators of firms in service and manufacturing sector. It reports a sample size with valid answers, minimum and maximum, mean, and standard deviation. The dataset covers 1,464 service and 1,927 manufacturing firms in that majority of firms have a valid answer for categorical information such as industry and size. However, the sample size was reduced as the analysis was restricted to firms with sufficient information for 4 Earlier studies also use productivity and profitability growth as proxies to determine the economic performance, e.g., Krugman [1994], Cameron [1999], Baldwin and Sabourin [2001], Ball and Moffitt [2001], Oulton [2002]. 5 These five non­technological innovation variables denote the significant creative improvement activities referred in the Norwegain CIS3 survey. Since innovation is defined in the survey as a new or significantly improved product or process, this paper accordingly adopts this definition to other non­technological factors included in the same questionnaire.
Page 10 of 30 The Impact of ICT on the Growth of the Service Industries measuring ICT R&D intensity in 1999­2001 and economic performance in 2001­2003. In the final cleansing of samples, firms those have invalid answers for calculating growth and other main variables required in each equation were also excluded. The resulting samples comprise around two thousand firms in total representing the Norwegian service and manufacturing industries. The preliminary descriptive investigation of the role played by ICT on the firm’s economic performance is done by comparing the growth of ICT R&D­intensive firms and 6 non­ICT R&D firms, and of firms that had ICT R&D intensity above and below the industrial average (in both manufacturing and service sector). The issues empirically addressed are the following:
·
Whether, and the extent to which, ICT R&D­intensive service firms during the period 1999­2001 have shown better economic performance in the following three years (2001­2003) when compared with non­ICT R&D service firms;
·
Whether, and the extent to which, service firms that have a higher level (above the industrial average) of ICT R&D intensity in 1999­2001, have grown in the subsequent period (2001­2003) faster relative to those which have less (below the industrial average);
·
Whether, and the extent to which, ICT R&D­intensive service firms have grown in the period 2001­2003 faster than ICT­intensive manufacturing firms when comparing by the difference in economic performance between firms which have a higher level of ICT R&D intensity (above the industrial average) vis­à­vis those which have less (below the industrial average). [TABLE 1 ABOUT HERE] 6 ICT­intensive firms denote firms that have a share of ICT in R&D expenditure (ICTINTE) above zero while non­ICT firms are defined as firms whose ICTINTE equals zero.
Page 11 of 30 The Impact of ICT on the Growth of the Service Industries Preliminary assessment begins with a comparison between ICT R&D­intensive and non­ICT R&D service firms across industries and firm sizes on the basis of growths in productivity (GPR0103) and profitability (GPF0103) during the period 2001­2003. Overall, the evaluation illustrates that ICT R&D­intensive service firms have shown better economic performance regardless of what growth indicator is employed. Apart from Size1, firms that invested in ICT R&D during 1999­2001 enjoyed superior productivity and profitability growth in the subsequent period (2001­2003). ICT R&D­intensive service firms in Size2, 3 and 4 have grown 0.09, 0.41 and 0.72 percent, respectively, faster than non­ICT R&D firms in terms of productivity. They, in Size2, 3 and 4, also show more rapid growth in profitability at approximately 0.12, 0.08 and 0.46 percent, respectively. The impact of ICT on service firms is more apparent when compared across industries. ICT R&D­intensive firms performed better than non­ICT R&D firms in more than half of all industries considered. The results with both economic performance indicators are consistent in most industries, except non­ICT R&D service firms in the Telecommunication industry that show higher growth using both indicators, and those in the Data Processing industry which display a small difference in profitability growth. [TABLE 2 ABOUT HERE] The data from Table 2 suggests that ICT enhances the economic performance of majority of firms in the Norwegian service industries. Table 3 confirms this argument by further revealing that service firms whose ICT R&D intensity is above industrial average enjoy – when compared to less ICT R&D­intensive service firms (devotion to ICT R&D below the industrial average) – higher growths in both productivity and profitability irrespective of firm size. The magnitude of growth differences between most and least ICT R&D­intensive service firms are all positive and considerable, especially for the firms with more than 250 employees (Size4). Therefore, this data answers to the second question that firms which had a higher level (above the industrial average) of ICT R&D intensity have grown faster in relation to those which have less (below the industrial average) regardless of the firm size and with no exception to the economic performance indicator, i.e., the higher the level of ICT R&D intensity, the faster the growth of service firms. Consistent with theories outlined earlier, the statistics in Table 3 further endeavour to answer the last question that, with the aid of ICT (during 1999 ­ 2001), most ICT R&D­
Page 12 of 30 The Impact of ICT on the Growth of the Service Industries intensive service firms had performed better than those in manufacturing in the period 2001 ­ 2003 irrespective of growth indicator used. The average total profitability growth difference among most and least ICT R&D­intensive firms in the service industries is almost double compared to the difference among those in the manufacturing industries. The difference is more obvious when comparing across the firm size. Apart from only highly ICT R&D­intensive manufacturing firms in Size2 that show somewhat faster profitability growth, all figures in Table 3 demonstrate that ICT is more beneficial to service firms by the greater difference in economic performance between most and least ICT R&D­intensive firms in the service sector when compared to those in manufacturing. [TABLE 3 ABOUT HERE] In summary, the descriptive evidence confirms and underlines the productive relationship between ICT R&D and the Norwegian service firms. It has been shown that service firms who invested in ICT experienced faster growth (in both productivity and profitability) and, moreover, those who did more intensely enjoyed significantly better economic performance. In addition, the statistics confirm prior researches and theories outlined earlier [i.e., OECD, 1996; Evangelista, 2000; Hempell et al., 2004] by pointing out that most ICT R&D­intensive service firms, when compared with less ICT R&D­intensive firms, depict better growth rate than that found in the manufacturing industries. 4.2 Econometric Analysis The previous section demonstrates that ICT R&D undertaken during 1999­2001 did certainly have a substantial impact on the growth of the Norwegian service firms in the next three years (2001­2003). In the last section, the effect of ICT R&D is examined in a regression framework using four equations. First, the economic performance measured in terms of growth in productivity is used to evaluate the impact of ICT and other innovation activities on service and manufacturing firms. The first equation is constructed as:
Page 13 of 30 The Impact of ICT on the Growth of the Service Industries Yi,t = ß0 + (ß1 × Xi,t­1) + (a1 × pi) + (a2 × nt) + (a3 × si) + ui,t (1) Where: Yi,t is the economic performance of firm i at time t; Xi,t­1 is the ICT R&D intensity of firm i at time t­1; pi is a vector of product and process innovation dummies; nt is a vector of non­technological innovation dummies; si is a vector of size dummies; aj (j=1,2,3) are vectors of unknown coefficients; ui,t are random error terms with the usual assumptions. The effect of ICT R&D on productivity growth formalised in Equation 1 is in line with previous literature that examines the impact of innovation on economic performance in services using the Italian CIS2 data [Cainelli et al., 2004]. Three variables were used to measure the economic performance of firms: growth rates of sales; growth rates of employment; and labour productivity calculated in terms of sales per employee. Then different types of innovation activities were used as regressors in the equation one at a time in order to determine elasticity coefficients. The model that was previously used for assessing the impact of innovation in services has been modified to suit an analysis with the more specific aim to explore inter alia how ICT affects economic growth of the Norwegian firms in this research. The time span of the dataset enables this investigation to measure the impact that ICT R&D intensity undertaken during 1999­2001 has had on the firm’s growth in the subsequent 7 three years (2001­2003). The econometric specification in the equation 1 uses ICT R&D intensity which denotes the share of ICT in R&D expenditure over total expenditure in the period 1999­2001 (ICTINTE) as the main independent variable (Xi,t­1). On the output side, the annual average growth of labour productivity calculated in terms of sales per employee in the period 2001­2003 (GPR0103) is employed as a dependent variable. In addition, firm size (si) and non­technological innovations (nt) namely, strategic innovation (STINNO), managerial innovation (MNINNO), organisational innovation 7 The time lag of two years in this analysis is in line with Pakes and Schankerman [1984] who suggest that the lag of contribution of R&D project to the productivity is approximately two years.
Page 14 of 30 The Impact of ICT on the Growth of the Service Industries 8 (OGINNO), marketing innovation (MKINNO) and aesthetic innovation (ASINNO) , are used in the form of dichotomous variable in equation 1 in order to measure their effect on the firm’s growth. Furthermore, the control variable for product and process innovation (pi) during the current period (1999­2001) is taken into account in order to avoid an 9 overestimation of ICT impact on productivity growth (GPR0103). Pi is employed owing to the fact that it could also be the factor that affects the firm’s performance in the subsequent period (2001­2003). Similar to dummy variables for firm size and non­ technological innovations, pi is used in a dichotomous form which has a value equal to one if the firm undertakes such innovation activity, and zero otherwise. [TABLE 4 ABOUT HERE] Table 4 demonstrates the regression result carried out using an econometric estimation in Equation 1. The result fully corroborates the descriptive evidence and theories outlined earlier that ICT matters extensively for the growth of firms, particularly in the service industries [Miles, 2000; OECD, 2001]. The coefficient for ICT R&D intensity of service firms is positive and statistically significant especially when compared to that of manufacturing firms. In addition, the coefficients of size dummy (a3) are considered to be consistent with the descriptive statistics shown in the previous section. The econometric result again confirms the high growth of large service firms especially for firms with more than 250 employees (Size4) from which one may conclude that larger firms are commonly more able to innovate and improve their productivity [Schumpeter, 1950]. Moreover, the coefficients of additional control variables for other types of innovation show that the effect of ICT is not considered spurious since there is no significant positive effect from product and process innovation (PDINNO and PCINNO) as well as non­technological innovations (STINNO, MNINNO, OGINNO, MKINNO and ASINNO) on growth in productivity 8 The first four variables are also used as non­technological innovation variables in Hempell et al. [2004] to examine their impact on firms in the Netherlands. See chapter 3 for more explanation on these non­technological innovation variables. 9 For example, Hempell et al. [2004] also employed product and process innovation as a proxy for technological innovation to measure its effect on productivity of firms in Germany and the Netherlands.
Page 15 of 30 The Impact of ICT on the Growth of the Service Industries 10 (GPR0103) of service firms. In trying to explain this evidence, it could be interpreted that remarkable productivity growth of service firms during 2001–2003 is as a result of ICT R&D than other types of innovation since ICT is the most important technology for innovation in services [Licht et al., 1999]. The results from Table 4 illustrate that firms in the service industries certainly grow faster with the use of ICT especially when compared to manufacturing firms. The effect of ICT R&D particularly on service firms is further explored using both productivity growth (GPR0103) and profitability growth measured in terms of profit per employee during 2001­ 2003 (GPF0103) as dependent variables in Equation 2. The model is as follows: Yi,t = ß0 + (ß1 × Xi,t­1) + (a1 × pi) + (a2 × nt) + (a3 × si) + (a4 × in) + ui,t (2) Where: Yi,t is the economic performance of firm i at time t; Xi,t­1 is the ICT R&D intensity of firm i at time t­1; pi is a vector of product and process innovation dummies; nt is a vector of non­technological innovation dummies; si is a vector of size dummies; in is a vector of industry dummies; aj (j=1,2,3,4) are vectors of unknown coefficients; ui,t are random error terms with the usual assumptions. Besides ICT R&D intensity (Xi,t­1), non­technological innovation variables (nt) and other control variables that are similarly applied as in Equation 1, Equation 2 employs both productivity and profitability growth of service firms during 2001­2003 as dependent variables (Yi,t). Each of these economic performance indicators for the firm at time t is used 11 one at a time in the equation. Furthermore, industry dummy (in) is additionally taken into account in Equation 2 in order to control the effect of industry­specific factors on the growth of service firms. 10 One may also interpret that the coefficients of PDINNO and PCINNO are not significant because of the usual unclear distinction between product and process innovation. 11 Time t­1 and t denote the period of 1999–2001 and 2001–2003, respectively.
Page 16 of 30 The Impact of ICT on the Growth of the Service Industries [TABLE 5 ABOUT HERE] The regression results using econometric estimation of Equation 2 are demonstrated in Table 5. It is shown again in this table (irrespective of the indicator used) the essence of ICT as a key success factor of service firms [Gershuny and Miles, 1983; Evangelista, 2000; Miles, 2000; OECD, 2001]. The coefficients of growths and ICT intensity are statistically significant in terms of both productivity and profitability growth (0.068 and 0.053, at .01 and .05 percent level of significance, respectively). It is also worth noting that the results of other variables are still all consistent using the same samples. In addition, the regression results show no significant industry­specific effect as far as an industry dummy is concerned. In other words, it implies that the benefit from ICT is not only limited to some service industries. This finding underscores the pervasiveness of ICT as a ”general purpose technology” which is compatible with most types of service firms [Bresnahan and Trajtenberg, 1995]. Evidences from the first two models prove that ICT R&D intensity certainly brings about positive impact on the firm’s growth. Nevertheless, there is no considerable effect 12 from non­technological innovation factors, though strategic innovation shows negative effect on growths that are not highly significant. The last two econometric models are pursued to further explore the joint impact of ICT and non­technological innovations on productivity growth of service firms as theoretically outlined earlier such that ICT and significant changes in an organisation might be complementarily essential for the firm’s competitiveness and growth [Bresnahan et al., 2002]. Equation 3 is added with a variable that is used as a proxy for all non­technological innovations (ORN). A value of ORN equals one if the firm has undertaken at least one type of non­technological innovations (STINNO, MNINNO, OGINNO, MKINNO and ASINNO), 13 and zero otherwise. The model is constructed as: 12 These results somewhat contradict the evidence by Van der Wiel [2001b] in which the Dutch business services that implement only non­technological innovations could obtain higher productivity growth than non­innovating firms’.
Page 17 of 30 The Impact of ICT on the Growth of the Service Industries Yi,t = ß0 + (ß1 × Xi,t­1) + (a1 × ORN) + (a2 × pi) + (a3 × si) + (a4 × se) + ui,t (3) Where: Yi,t is the economic performance of firm i at time t; Xi,t­1 is the ICT R&D intensity of firm i at time t­1; ORN is a vector of proxy for all non­technological innovation dummies; pi is a vector of product and process innovation dummies; si is a vector of size dummies; in is a vector of industry dummies; aj (j=1,2,3,4) are vectors of unknown coefficients; ui,t are random error terms with the usual assumptions. The purpose of further constructing Equation 3 is to explore the consistency of the impact of ICT R&D (ICTINTE) as well as to demonstrate the effect of sole non­ technological innovations (ORN). Corresponding to previous attempts by Brynjolfsson et 14 al. [2002] and Hempell et al. [2004], Equation 4 is constructed to particularly examine the joint impact of ICT and non­technological innovations (ICT*ORN) on the firm’s growth and compare it with the effect of sole non­technological innovations (ORN) as: Yi,t = ß0 + (ß1 × Xi,t­1) + (ß2 × ICT*ORNi,t­1) + (a1 × ORN) + (a2 × pi) + (a3 × si) + (a4 × se) + ui,t (4) Where: Yi,t is the economic performance of firm i at time t; Xi,t­1 is the ICT R&D intensity of firm i at time t­1; ICT*ORNi,t­1 is the interaction term for ICT R&D and non­technological innovations for firm i at time t ­ 1; ORN is a vector of proxy for all non­technological innovation dummies; pi is a vector of product and process innovation dummies; 13 Hempell et al. [2004] previously employed similar estimation for non­technological innovations but only four types of them were taken into account which are strategic, marketing, organizational and management innovation. 14 Brynjolfsson et al. [2002] find that ICT and non­technological innovations are complementary for firms in the U.S. whereas the result from the Netherlands [Hempell et al., 2004] contradicts the former such that the joint impact of ICT and non­technological innovations is insignificant.
Page 18 of 30 The Impact of ICT on the Growth of the Service Industries si is a vector of size dummies; in is a vector of industry dummies; aj (j=1,2,3,4) are vectors of unknown coefficients; ui,t are random error terms with the usual assumptions. Similar to previous models, all control variables are also included and growth in productivity is used as a proxy for the firm’s economic performance. Besides, the variable for joint contribution of ICT and non­technological innovations (ICT*ORN) is employed to further analyse whether, and to what extent, a combination of ICT and non­technological innovations have greater impact–when compared to ICT R&D intensity (ICTINTE) and/or non­technological innovations (ORN) alone–on the productivity growth of service firms. ICT*ORN is calculated by multiplying ICT intensity to the dichotomous value of all non­ technological innovations (ICTINTE * ORN) and is used to represent the difference between the elasticity of joint contribution between ICT and non­technological innovations vis­à­vis that of sole non­technological innovations (ORN). The final result displayed in Table 6 shows the joint effect of ICT R&D and non­ technological innovations. This study additionally finds that most Norwegian service firms could experience higher growth if they invest in ICT R&D in line with non­technological innovations. The coefficient of growth in productivity (GPR0103) and the interaction term for ICT and non­technological innovations (ICT*ORN) is positive and statistically significant especially when compared with non­technological innovations alone (ORN) considering both models (Equation 3 and 4). It is therefore important to note that the joint impact of ICT and non­technological innovations instigates much higher growth than sole non­ technological innovations (STINNO, MNINNO, OGINNO, MKINNO, and ASINNO by ORN proxy). This finding draws parallels with Brynjolfsson et al. [1997] and Brynjolfsson et al. [2002] such that, in order to be successful, firms crucially need to be reinforced with a combination of both ICT and non­technological innovations. [TABLE 6 ABOUT HERE] In addition to the finding that ICT and non­technological innovations are complementary measures of growth in service firms, the coefficients of all variables used
Page 19 of 30 The Impact of ICT on the Growth of the Service Industries in all equations are entirely consistent by the same samples examined throughout the econometric analysis (as shown in Table 4 – 6). The size of firm bears influence on the firm’s economic performance and ICT R&D has shown a positive impact on the Norwegian service firm’s growth rates regardless of industry­specific characteristics. Furthermore, other types of innovation do not show the same consistent growth as displayed by ICT R&D and, hence, it might be deduced again that ICT is the most important technology for innovation in services [Licht et al., 1999]. All in all, it appears that the regression results in a variety of models in the final part of analysis complete this investigation by offering a number of valuable empirical findings and, most importantly, accentuating that ICT leads to the growth of firms in the Norwegian service industries. 5 ­ Major Findings and Concluding Remarks This study empirically explores a relationship between the chief innovation activities and economic performance of firms in Norway. The robust bond between ICT and growth of services is the major concern while manufacturing is used as a benchmark. Non­ technological innovations are not neglected and have also been included in the analysis in order to investigate its joint contribution with ICT in fostering service innovation. The unique dataset used in this research is a result of an integration of three novel sources, namely CIS3, R&D survey and annual accounts of the Norwegian firms. The research therefore shows the under­discovered productive link between ICT and service firms in Norway. As shown in the analysis, both descriptive and econometric evidences prove the merit of ICT to the competitiveness and superior growth of the service industries. This study finds that most ICT R&D­intensive service firms have outperformed non­ ICT R&D service firms in terms of both productivity and profitability growth. Moreover, service firms whose ICT R&D intensity exceeds the industrial average have experienced higher growth irrespective of economic performance indicator concerned. The empirical result also confirms the main hypothesis of this investigation by demonstrating a wider gap of economic performance of service firms–when compared to that of manufacturing firms– between those who have invested more heavily in ICT R&D vis­à­vis those who have less. These results also corroborate outlined theories such that ICT is seen as one of the major driving forces leading to the superior economic performance of the service industries in the present techno­economic paradigm [Gershuny and Miles, 1983; Freeman and Louca,
Page 20 of 30 The Impact of ICT on the Growth of the Service Industries 2002]. That might be owing to the fact that information­based characteristics of services give to ICT a central role in firm’s innovation activities which results in an impressive growth of firms in such industries [Evangelista, 2000; OECD, 1996]. Several notable findings are also supplied by the econometric analysis. The coefficients between ICT intensity, productivity and profitability growth are positive and statistically significant for service firms while less respectable for firms in the manufacturing industries. In addition, most service firms could benefit from using ICT regardless of their industry­specific factors. This evidence underscores the pervasiveness of ICT as a ”general purpose technology” which is supportive and compatible to most services [Bresnahan and Trajtenberg, 1995]. It should additionally be noted that non­technological factors are also crucial for the performance of service firms in which the superior outcome in growth is even more apparent for the firms undertaken ICT R&D jointly with non­technological innovations. This supplementary finding is considered in line with the argument that firms cannot simply invest heavily in ICT in order to achieve better economic performance [Bresnahan and Trajtenberg, 1995; Bresnahan et al., 2002]. On the other hand, the joint contribution of ICT and non­technological innovations is a compulsory recipe for true success [Brynjolfsson et al., 1997]. 6 ­ References Andersen, B., Howells, J., Hull, R., Miles, I. and Robet, J. (2000) Knowledge and Innovation in the New Service Economy, Cheltenham: Edward Elgar. Armstrong, P., Harchaoui, T. M., Jackson, C. and Tarkhani, F. (2002) “A Comparison of Canada­US Economic Growth in the Information Age, 1981 ­ 2000: The Important of Investment in Information and Communication Technologies”, Economic Research Paper Series No. 70, February, Zurich. Baldwin, J. and Sabourin, D. (2001) “Impact of the Adoption of Advanced Information and Communication Technologies on Firm Performance in the Canadian Manufacturing Sector”, Statistics Canada, Micro­ Economic Analysis Division, Ottawa, October. Ball, L. and Moffitt, R. (2001) “Productivity Growth and the Phillips Curve”, Economics Working Paper Archive 450, The Johns Hopkins University, Department of Economics. Barras, R. (1986) “Towards a theory of innovation in services”, Research Policy, Vol.15, pp.161 – 73. Barras, R. (1990) “Interactive innovation in financial and business services: the vanguard of the services Revolution”, Research Policy, Vol.19, pp. 215 – 237. Bresnahan, T. F. and Trajtenberg, M. (1995) “General Purpose Technologies: ‘Engines of Growth’?”, Journal of Econometrics, Vol.65, pp. 83 – 108. Bresnahan, T. F., Brynjolfsson, E. and Hitt, L. M. (2002) “Information Technology,
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Page 22 of 30 The Impact of ICT on the Growth of the Service Industries Grossman, G. M. and Helpman, E. (1991) Innovation and Growth in the Global Economy. Cambridge, Massachusetts: MIT Press Hauknes, J. (1996) “Innovation in the Service Economy”, STEP Report 7/96, STEP Group, Oslo. Hempell, T., Van Leeuwen, G. and Van der Wiel, H. (2004) “ICT, Innovation and Business Performance in Services: Evidence for Germany and the Netherlands,” in The Economic Impact of ICT—Measurement, Evidence, and Implications, pp. 131 ­ 152, Paris: OECD. Jalava, J. and Pohjola, M. (2001) “Economic Growth in the New Economy”, WIDER Discussion Paper 2001/5. Helsinki: UNU/WIDER. Jorgenson, D. and Stiroh, K. (2000) “Raising the Speed Limit: US Economic Growth in the Information Age”, OECD Working Papers, No. 261. Kim, S. J. (2002) The Digital Economy and the Role of Government: Information Technology and Economic Performance in Korea, Program on Information Resources Policy, Harvard University, January. Krugman, P. (1994) “The Myth of Asia’s Miracle”, Foreign Affairs, Vol.73, pp. 62 – 78. Licht, G., Ebling, N. and Niggemann, H. (1999) Innovation in the Service Sector – Selected Facts and Some Policy Conclusions, Luxembourg: European Commission. Malerba, F. (2004) Sectoral Systems of Innovation concept, issues and analyses of six major sectors in Europe. Cambridge: Cambridge University Press. Maliranta, M. and Rouvinen, P. (2004) “ICT and Business Productivity: Finnish Micro­Level Evidence” in The Economic Impact of ICT­­Measurement, Evidence, and Implications, pp. 213 ­ 240, Paris: OECD. Metcalfe, J. S. and Miles, I. (2000) Innovation System in the Service Economy. Measurement and Case Study Analysis, Boston: Kluwer. Miles, I. (2000) “Services Innovation: Coming of Age in the Knowledge Based Economy”, International Journal of Innovation Management, Vol.4 No.4, pp. 371 – 389. Miles, I. (2005) “Innovation in services”, in Fagerberg, J., Mowery, D.C. and Nelson, R.R. (Eds.), The Oxford Handbook of Innovation, Oxford: Oxford University Press. Nelson, R. R. (1959) “The simple economics of basic research”, Journal of Political Economy, Vol. 67, pp. 297­306 OECD (1996) Employment and growth in the knowledge­based economy, Paris: OECD. OECD (2000) Science, Technology and Innovation in the New Economy, Paris: OECD. OECD (2001) “Main Science and Technology Indicators”, Vol. 2001/2, Paris: OECD. OECD (2003) ICT and Economic growth: evidence from OECD countries, industries and firms, Paris: OECD. Oliner, S. and Sichel, D. (2001) “The Resurgence of Growth in the Late 1990s: is Information Technology the Story?”, Journal of Economic Perspectives, Vol.14, No.4, pp. 3 ­ 22. Oulton, N. (2002) “ICT and productivity growth in the UK”, Oxford Review of Economic Policy, Vol. 18, pp. 363 ­ 379. Pakes, A. and Schankerman, M. (1984) “Rates of obsolescence of knowledge, research gestation lags, and the private rate of research resources”, in Griliches (Ed.) R&D, Patents, and Productivity. Chicago: University of Chicago Press, pp. 209 – 232. Parham, D., Roberts, P. and Sun, H. (2001) “Information Technology and Australia’s Productivity Surge”, Staff Research paper, Productivity Commission, AusInfo, Canberra. Pilat, D. (2001) “Innovation and Productivity in Services: State of the Art”, in OECD (2001), Innovation and Productivity of Services, Paris: OECD. Pilat, D. and Wolfl, A. (2004) “ICT Production and ICT Use: What role in Aggregate Productivity Growth?” in The Economic Impact of ICT­­Measurement, Evidence, and Implications, pp. 85 ­ 104, Paris: OECD. Schumpeter, J. A. (1939) Business Cycle: A theoretical, historical, and statistical analysis of the capitalist process.
Page 23 of 30 The Impact of ICT on the Growth of the Service Industries Schumpeter, J. A. (1950) Capitalism, socialism and democracy, 3 rd edition, New York: Hamper and Row. Solow, R. (1957) “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics, Vol. 38, pp. 312 ­ 20. Stanback, T. M. (1979) Understanding the service economy: Employment, productivity, location. Baltimore: John Hopkins University Press. Tether B. S., Hipp, C. and Miles, I. (2001) "Standardization and Particularisation in Services: evidence from Germany”, Research Policy, Vol. 30, pp. 115­1138. Van der Wiel, H. (2001a) “Does ICT Boost Dutch Productivity Growth?”, CPB Document No. 016, CPB Netherlands Bureau of Economic Policy Analysis, December. Van der Wiel, H. (2001b) “Innovation and Productivity in services”, CPB report 2001/1. CPB Netherlands Bureau of Economic Policy Analysis.
Page 24 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 1 ICT R&D INTENSITY AND ECONOMIC PERFORMANCE INDICATORS Descriptive Statistics Variables N Minimum Maximum Mean Std. Dev. Service firms Average growth rate of productivity (2001–2003) GPR0103 963 ­2.64 3.18 0.0328 0.78828 Average growth rate of profitability (2001–2003) GPF0103 861 ­5.09 3.43 0.0713 0.99974 ICT R&D Intensity ICTINTE 933 0.00 30.99 0.1100 1.37056 Average growth rate of productivity (2001–2003) GPR0103 1474 ­3.82 3.44 0.0662 0.69980 Average growth rate of profitability (2001–2003) GPF0103 1213 ­4.03 3.96 0.1139 0.93599 ICT Intensity ICTINTE 1343 0.00 3.88 0.0116 0.14615 Manufacturing firms Source: Calculations based on an integration of CIS3 data, R&D survey and annual accounts of firms in Norway, Statistics Norway.
Page 25 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 2 THE ECONOMIC PERFORMANCE OF ICT R&D­INTENSIVE AND NON­ICT R&D FIRMS IN SERVICE INDUSTRIES GPR0103 GPF0103 ICT­R&D intensive Non­ICT Wholesale trade 0.2208 0.0882 0.1326 0.7158 0.1282 0.5876 Sea Transportation 0.7020 0.2045 0.4975 0.4924 0.2272 0.2652 Transportation and travel service 0.0849 ­0.0207 0.1056 ­0.1129 ­0.1365 0.0236 Insurance and Pension 1.9400 0.3739 1.5661 2.3100 0.0340 2.2760 Services for Financial Service 0.1907 ­0.0029 0.1936 0.4104 0.3489 0.0615 Business service 0.0553 ­0.0219 0.0772 0.1964 ­0.1341 0.3305 Telecommunication ­0.5668 0.5026 ­1.0694 ­0.2791 0.3929 ­0.6720 Data Processing 0.1354 ­0.0139 0.1493 ­0.0239 0.0780 ­0.1019 Size 1 Size 2 Size 3 Size 4 ­0.5823 0.0960 0.5777 1.4155 ­0.2415 0.0041 0.1707 0.6998 ­0.3408 0.0919 0.4070 0.7157 ­0.6449 0.0329 0.3802 1.0181 ­0.2401 ­0.0840 0.3010 0.5563 ­0.4048 0.1169 0.0792 0.4618 Total 0.0566 0.0316 0.0250 0.1568 0.0847 0.0721
Dif. ICT­R&D intensive Non­ICT Dif. Firm size (classes of employees) Page 26 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 3 THE ECONOMIC PERFORMANCE OF THE MOST AND THE LEAST ICT R&D­INTENSIVE FIRMS MEASURED BY PRODUCTIVITY AND PROFITABILITY GROWTH (GPR0103 & GPF0103)* Services Manufacturing ICTINTE > Ave. ICTINTE Dif. < Ave. ICTINTE > Ave. ICTINTE Dif. < Ave. Productivity Growth Size 1 Size 2 Size 3 Size 4 ­0.4933 0.1583 0.8529 1.9276 ­0.8140 ­0.3620 0.1168 0.1084 0.3207 0.5203 0.7361 1.8192 ­0.3348 0.3176 0.3349 1.5568 ­0.3155 0.0442 0.1537 0.0305 ­0.0193 0.2734 0.1812 1.5263 Total 0.2051 ­0.2942 0.4993 0.3966 0.0643 0.3323 ­0.3857 0.2005 0.4605 1.8098 ­0.8478 ­0.6321 0.3546 0.0386 0.4621 0.8326 0.1059 1.7712 ­0.1959 0.6613 0.1683 1.6258 0.7819 ­1.0313 0.3393 0.1874 ­0.9778 1.6926 ­0.1710 1.4384 Profitability Growth Size 1 Size 2 Size 3 Size 4 0.3293 ­0.1380 0.4673 0.4361 0.1757 0.2604 Total *Instead of using mean, median value is applied to computing the averages for ICT intensity and growth in productivity. This is because the mean value seems unsuitable as it is heavily affected by extreme values of outliers. 1) Above average ICTINTE is defined as the firm that has a share of ICT in R&D expenditure over total expenditure exceeds the median value of total firms in the industry. 2) Below average ICTINTE is defined as the firm whose share of ICT in R&D expenditure over total expenditure is lower than the median value of total firms in the industry.
Page 27 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 4 THE EFFECT OF ICT R&D AND OTHER TYPES OF INNOVATION ON PRODUCTIVITY GROWTH (GPR0103) (Constant) Services Manufacturing ­0.373*** (.048) ­0.380*** (.040) 0.068*** (.025) 0.184 (.115) Ref. 0.306*** (.065) 0.729*** (.062) 1.257*** (.082) Ref. 0.259*** (.051) 0.606*** (.048) 1.085*** (.071) ­0.003 (.065) 0.032 (.074) ­0.007 (.060) 0.001 (.060) ­0.123* (.071) ­0.007 (.076) 0.039 (.063) 0.003 (.067) ­0.124 (.080) 0.013 (.049) ­0.014 (.056) ­0.004 (.047) 0.023 (.051) 0.067 (.051) 674 0.331 [.320] 1119 0.230 [.223]
ICT R&D intensity ICTINTE Firm size (classes of employees) Size 1 Size 2 Size 3 Size 4 Control Innovation variables PDINNO PCINNO Non­technological Innovation STINNO MNINNO OGINNO MKINNO ASINNO No. of Observations R 2 *, **, *** Significant on 10, 5 and 1 percent level. Standard errors and adjusted R 2 are represented in ( ) and [ ], respectively. Page 28 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 5 THE EFFECTS OF INNOVATIONS ON ECONOMIC PERFORMANCE OF SERVICE FIRMS (GPR0103 & GPF0103) GPR0103 GPF0103 ­0.371* (.196) ­0.057 (.248) 0.068*** (.026) 0.053** (.026) ­0.012 (.068) 0.036 (.075) ­0.027 (.096) 0.077 (.101) Ref. 0.309*** (.066) 0.727*** (.064) 1.242*** (.086) Ref. 0.300*** (.092) 0.743*** (.086) 1.251*** (.117) Wholesale Trade Transportation Sea Transportation Transportation and Travel Service Business Service Financial Service Insurance and Pension Services for Financial Service 0.024 (.198) 0.065 (.216) 0.015 (.210) ­0.097 (.201) 0.001 (.201) 0.144 (.256) 0.305 (.259) ­0.034 (.234) ­0.254 (.252) ­0.386 (.276) ­0.427 (.269) ­0.359 (.256) ­0.290 (.255) ­0.264 (.260) 0.023 (.321) ­0.170 (.309) Data Processing (Computer Service) Telecommunication 0.045 (.201) ­0.029 (.244) ­0.217 (.256) ­0.323 (.314) ­0.136* (.072) ­0.002 (.076) 0.028 (.064) 0.006 (.068) ­0.135* (.082) ­0.193** (.095) 0.076 (.101) 0.071 (.087) ­0.106 (.092) ­0.127 (.105) (Constant) ICT R&D intensity ICTINTE Control Innovation variables PDINNO PCINNO Firm size (classes of employees) Size 1 Size 2 Size 3 Size 4 Industry dummy Non­technological Innovation STINNO MNINNO OGINNO MKINNO ASINNO No. of Observations R 2 674 689 0.338 [.371] 0.227 [.203]
2 *, **, *** Significant on 10, 5 and 1 percent level. Standard errors and adjusted R are represented in ( ) and [ ], respectively. Page 29 of 30 The Impact of ICT on the Growth of the Service Industries TABLE 6 THE JOINT IMPACT OF ICT R&D AND NON­TECHNOLOGICAL INNOVATIONS ON GROWTH IN PRODUCTIVITY ORN ICT*ORN vs. ORN ­0.394** (.198) ­0.384* (.198) 0.066*** (.026) 0.042 (.028) ­ ­0.062 (.054) 0.134** (.067) ­0.065 (.054) ­0.027 (.078) 0.027 (.074) ­0.040 (.069) 0.035 (.074) Ref. 0.325*** (.067) 0.737*** (.064) 1.244*** (.085) Ref. 0.312*** (.066) 0.733*** (.064) 1.228*** (.086) Wholesale Trade Transportation Sea Transportation Transportation and Travel Service Business Service Financial Service Insurance and Pension Services for Financial Service Data Processing (Computer Service) Telecommunication 0.039 (.198) 0.069 (.217) 0.045 (.211) ­0.082 (.202) 0.013 (.201) 0.154 (.255) 0.311 (.259) ­0.011 (.235) 0.023 (.201) 0.016 (.243) 0.037 (.198) 0.066 (.216) 0.042 (.211) ­0.087 (.202) 0.009 (.201) 0.155 (.255) 0.305 (.258) ­0.013 (.234) 0.005 (.201) 0.042 (.243) No. of Observations 2 R 674 0.330 [.313] 674 0.334 [.316]
(Constant) ICT R&D intensity ICTINTE Joint contribution of ICT R&D and non­technological Innovations ICT*ORN ORN Control Innovation variables PDINNO PCINNO Firm size (classes of employees) Size 1 Size 2 Size 3 Size 4 Industry Dummy *, **, *** Significant on 10, 5 and 1 percent level. Standard errors and adjusted R 2 are represented in ( ) and [ ], respectively. 1) ICT*ORN represents an interaction variable determining the extent to which firms have jointly undertaken ICT R&D and non­technological innovations during 1999–2001. 2) ORN denotes the presence of at least one type of non­technological innovations in the organisation during 1999– 2001. Page 30 of 30