IT Innovation and Economic Growth: The importance of Moore's Law in productivity from a macro perspective

This paper analyzes the roles played by IT innovation and productivity in Japanese economic growth based on growth factor analysis (from 1975 to 2007) in a macroeconomic context. It also measures the impact of innovation in semiconductors-the source of IT innovation symbolized by Moore's Law. The main outcomes are as follows:

* In the 1990s, the economic growth rate dropped, and the rate of growth in total factor productivity (TFP) weakened. Although the rate of economic growth began to pick up in 2000, the rate of growth in TFP recovered at a slow pace.

* Production factor inputs between the 1990s and the 2000s are quite different. In the 1990s, the contribution of non-IT capital was significant, while that of labor input was negative. Meanwhile, in the 2000s, the contribution of non-IT capital became less important, while that of labor input has become significant.

* The contribution of IT capital to economic growth has been consistently growing since 1975. Approximately one third of all economic growth in the 2000s is attributable to investments in IT capital.

* The impact of the IT sector on TFP has also been growing. Of a TFP growth rate of 0.57% in the 2000s, 0.25% was attributable to the IT sector (particularly computers and communications equipment). Although its nominal share in the macro economy is small, the impact of IT innovation on productivity from the macro perspective cannot be ignored.

* In addition, it turned out that the impact of innovation in semiconductors, symbolized by Moore's Law as the source of IT sector productivity, was considerable. In the 2000s, innovation in semiconductor technologies accounted for 0.04 percentage points out of a 0.25% rise in the productivity of the IT sector, and 0.09 percentage points in non-IT sectors such as automobiles, amounting to 0.13 percentage points in total.