The term αI tICT–stockYt describes the amount of output generated through the
characteristic of ICTs as a general purpose technology where the demand effect of
the relevant supply effect is assumed to be a high as the latter. The parameter α gives
the magnitude of the influence a rise in the ICT stock has on other industries. It is
assumed that the network effects are proportional to the output; if an economy is less
developed—as measured by being a lower GDP per capita—it can be assumed that
the economy does not have the potential to easily exploit the possibilities a higher
stock of ICTs offers. Such a mechanism might be linked to a positive correlation
between higher education and per capita income, respectively, and ICT capital.
The parameter φ gives the additional value added through network effects the introduc-
tion of new technologies, or their adoption, brings. While we will get to this relation in the
end of this analysis the main interest at first concerns the development of the term for ICT
investment.
Due to a perceived development in international, intertemporal and especially
intersectoral price levels (for more details see Fig. 3) it is necessary to avoid
comparison problems. Therefore, it is imperative to use real data, not only when
describing the development of the ICT investments but also when discussing the
effects ICT investments will have on growth. Problems that arise when nominal ICT
data is converted to real data are discussed in detail in the following section and the
appendix puts the focus in some detail on the considerable differences between
nominal ICT investment-GDP ratios and real ICT investment-real GDP ratios; more-
over, the appendix also shows data from infratest on the frequency of internet usage;
infratest has conducted surveys in various countries (provision of data is gratefully
acknowledged).