Measuring the Impact of Innovations in Public IT Infrastructure on the Standard of Living in OECD Economies

Advances in information technology (IT) in the first decade of the 21st century have highlighted the role of IT as an enabling technology throughout an economy. But although the influence of IT in transforming the way in which business and consumer transactions are done is clear to all participants in the production-consumption process, it is difficult to attribute a specific value to and precisely measure the importance of the role of IT in improving consumer welfare.

The measurement of the economic value of public infrastructure has traditionally been problematic because of its ‘public good’ nature, which means that many users can benefit from use of public infrastructure at the very same time. This is especially true of ‘New Economy’ infrastructure such as IT, which links so naturally with developments in telecommunications so that the existence of many users, far from creating congestion in use, actually enhances the value of the infrastructure through network effects. In response to the measurement problem, the approach of the current paper is to utilize an economic model that looks at the end result – observations on changes in the pattern of consumer spending behavior – and econometrically estimates the extent of the link between these behavioral changes and their drivers: traditional economic stimuli as well as changes in the economic environment due to advances in technology and improved provision of public sector IT infrastructure. Counterfactual simulations with the estimated model provide money-metric measures of the welfare benefits of innovations in Internet-based public sector IT infrastructure in a variety of OECD economies.