The Economic Impact of Cloud Service in Japan

Author Name YoungGak KIM  (Senshu University) /KWON Hyeog Ug  (Faculty Fellow, RIETI)
Creation Date/NO. June 2015 15-J-027
Research Project Analysis on Service Industries: Productivity, Economic Welfare, and Policy Evaluation
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Much research has pointed out that one of the main reasons why the Japanese economy has suffered from a prolonged economic slump since the late 1990s is the delay in investment in information and communications technology (ICT). In this paper, we investigate the economic impact of introducing cloud computing services in Japanese firms. As was seen in the investment in general ICT, Japan is far behind the United States in the introduction of cloud computing services. To investigate Japanese firms' investment behavior in ICT, we matched the longitudinal data of the Actual Conditions Survey of Information Technology and the Basic Survey of Japanese Business Structure and Activities. Estimation of production function shows that the marginal product of ICT is much higher than its user cost (about five times), whereas that of usual capital is almost equal to its user cost. As is discussed by Fukao et al. (2015), the estimation results imply that Japanese firms underinvest in ICT. We categorized ICT input into four types: (i) hardware, (ii) software, (iii) ICT service, and (iv) other ICT costs, and estimated the production function to measure their marginal product. The results show that underinvestment is more prominent in software and ICT service than in hardware. Going further, we separated the cost of cloud service from ICT service, and estimated its coefficient and marginal product. It proves that cloud service plays an important role in firms' production, and that it is severely underinvested. The estimation results suggest that the marginal product of cloud service is about 24 times greater than its user cost.