Draft -- comments are welcome Impacts of Information Technology on Productivity and Linkage of the US Economy

This paper examines structural changes in the US economy in the context of interindustry linkages. Structural changes are studied in terms of factor saving in the input-output accounting which is in concept equivalent to productivity growth but whose sign of change is opposite. While the conventional growth accounting has developed to trace detailed industry sources of productivity growth, its methodology isolates each industry from the rest. On the other hand, the input-output accounting framework has interindustry relations as its essential key features and can be extended smoothly to factor saving analysis. This thesis reaches three conclusions. First, the I-O accounting produces comparable results in factor saving as in productivity growth. This paper shows the average annual rate of factor saving was -0.91 percent for 1987-1995 and -1.75 percent for 1995-2000. These figures are larger than the rates of productivity growth based on the growth accounting but the extent of difference is not very large. The fast growth in factor saving, particularly for the latter period, is not only noticeable in size but also qualitatively significant in the sense that active output growth was not accompanied by price increases. Second, Information Technology industries made substantial contributions to reduce inflation as well as to save factors by supplying cheaper intermediate inputs to the industries. The IT intermediate inputs contribute to factor saving by -0.20 percent for 1987 to 1996 and -0.41 percent for 1995-2000. Considering the small size of IT intermediate inputs, the contribution of IT intermediate inputs is significantly large. Third, the inter-industry context of I-O accounting provides a fertile ground to investigate the role of sectors in factor saving and output growth. This paper points out that, while the contraction of the manufacturing sector is taken as a serious problem, the expansion of trade and transportation which function as a partial operation of the manufacturing sector tends to be overlooked. Furthermore, the manufacturing sector contributes significantly to factor saving, while the services sector does so to employment, implying their cooperative relation which is in some sense a division of labor in an economy-wide scale. * This paper is a revised version of the PhD dissertation paper which was approved by the University of Notre Dame, IN, USA, in November 2004. The original paper can be downloaded from the library of U. Notre Dame (http://lib.nd.edu) under the author name “Kim, Seok-Hyeon” or the same title name. † Associate Research Fellow of Science and Technology Institute, Seoul, South Korea; email: [email protected]; address: Science and Technology Institute, 395-70 Shindaebang-dong, 26th Fl. Special Construction Center Bldg. Seoul 156-714, South Korea