IT Revolution

1
IT Revolutions Implicationsfor the Japanese
Economy

• Kazuyuki Motohashi
• RCAST, University of Tokyo RIETI
• http//mo.rcast.u-tokyo.ac.jp/

2
Outline

• Slowdown of Japanese Economy in Information Age
• Macro view of IT and economic growth Japan-US
  comparison
• Firm level view of IT and productivity
• IT, business strategy and performance
• Some implications for developing countries,
  focusing on Thailand

3
IT and Economic growth Japan and US
4
What is New Economy?

• Information technology revolution
• Moores Law and computer downsizing
• IT infrastructure and network externality
  Internet
• US economic resurgence in 90s
• Productivity growth and economic growth not
  incurring inflation
• Lowering NAIRU
• But not for Japan?
• True? If so, why?

5
Comparative Analysis of Japan and USJorgenson
and Motohashi (2005)

Output Ic Investment in computers
Is Investment in software It
Investment in communications equipment
Cc Consumption of IT products In,
Cn investment and consumption of non-IT Input
Kc Capital service flow from computers
Ks Capital service flow from software
Kt Capital service flow from communications
equipment Kn Capital service from
non-IT L Labor service Total
Factor Productivity A
6
Result (1) Output Decomposition

7
Result (2) Input Decomposition
8
TFP decomposition

9
IT and productivity at macro level

Productivity at IT supplier
Sharp price Decline of IT
IT investments At user sectors
Competition
IT innovation
?
Productivity at IT supplier
Productivity at Macro economic level
10
ICT expenditure by industry (2000)

11
IT investment and ProductivityIndustry Look
12
IT and productivity at firm levelMotohashi (2006)

• Data BSBSA (all firms with 50 employees and 30
  mil yen capital, for manufacturing and
  wholesale/retail, about 15,000 samples from
  91-2000)
• IT network use (only in 91, 94 and 97, (2000))
• Intranet, CAD/CAM, CALS, EDI, EC
• Type of business process
• Occupation mix information processing workers
• Information related expenses (incl. Computer
  rental fees, but not investment)

13
IT network and productivity

14
Comparison with US(Atrostic, Motohashi and
Nguyen 2005)
15
Needs to look into black box of firm

• US Studies
• Bresnahan, Brynjolfsson and Hitt?QJE2001
• ITHR/Org strategy (flat organization?performance
  based payment?bottom up business practices such
  as QC circles)?productivity
• Japanese Studies
• Same kind of approach FRI(1996)?EPA(2001)
• Not only decentralization but also centralization
  may work?
• But organizational rigidity hinders productivity
  gain from IT investment?

16
J-US economic system different?
Firm level observation
Aoki, Nonaka-Takeuchi, Kagono et. al
Economic system level observation

• Japans Economic Model, particularly life-long
  employment practice hampers IT based
  restructuring of firms CIA by Aoki
• In-house RD and fragmented innovation system of
  Japan

17
Firms organizational changes across countries
18
Fragmented IT system
19
Ineffective use of digital information (explicit
knowledge)
Organizational IQ Survey, RIETI
20
Brief Summary

• Slowdown of Japanese economy, but IT contribution
  is not so small as compared to US
• From growth accounting exercise, slowdown comes
  from labor and non-IT capital contributions
• TFP growth also slows down, coming from TFP
  growth in non-IT sector
• Firm level analysis shows productivity premium of
  IT use is smaller for Japanese firms
• Possible factors hampers effective use of IT
• Organizational inertia for J-type firms
• Bottom-up decision making system of Japanese
  firms

21
Implications for Developing Countries
Particularly for Thailand

• Importance of IT Infrastructure
• Broadband accessibility
• Effective use of Wireless technology, even 3G
  mobile system
• Importance of complementary investments (HR,
  organization etc.) to maximize IT investments
• SMEs HR development, managers IT skills
• Manufacturing Front loading in product
  development 3D CAD (becoming a part of global
  supply chain of multinationals)
• Japanese model?
• Importance of tacit knowledge for manufacturing
  process (vs digital revolution and speed in
  Chinese system)
• Across ASEAN countries