Value Added by High-Tech Industries in United States (2006-2008) (United Nations)

In order to get some sense of which high-tech industries have a more relevant role in the growth of a country, I compile the following table with data gathered from the United Nations Industrial Development Organization. Although is a reduced sample for only the United States, it can be observed that the industry of medical, precision and optical instruments (ISIC code 3300) and the pharmaceutical industry (ISIC code 2423) added more value than computers and telecommunications industries year by year. The United Nations define value added as:

“the value of output less the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector.”

INDSTAT4-Rev.3 contains time series data on five selected data items for the period covering 2006 – 2010. The data are arranged at the 3- and 4-digit level of ISIC (Revision 3) pertaining to the manufacturing sector, which comprises 151 manufacturing categories

Reference:

[1] INDSTAT4-Rev.3, 2011. United Nations Industrial Development Organization.

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• Young High-Tech Firms Outpace Private Sector Job Creation (prweb.com)

Product Life Cycles and R&D Intensity by Sector (L. Kamran Bilir, 2013)

L. Kamran Bilir (2013),  in an effort to explain how patent law enforcing and product life cycle length affect multinationals’ decision process, created a table (Table below) where the product life cycle length and the R&D Intensity is compared. Normally the product lifecycle is determined by the average retail duration of individual product varieties, however the approach used by Bilir consider the economic durability of an embedded technology. Bilir used the length of time in which a given patent continues to be cited by subsequent patents, considering that if it is still being cited it keeps a certain economic value. Regarding the relationship between the life cycle and the R&D intensity, reasoning would suggest that an industry with a short product cycle length would invest more in R&D in order to be up to date with competition. This R&D intensity and product life cycle length will drive a more complex and dynamic market.  Given the values below, the product life cycle length with Bilir approach and the R&D intensity have a weak correlation (-0.297554). However, its sign is still aligned with the  the inference above; allowing to maintain the initial assumption.

Reference:

[1] L. Kamran Bilir, 2013. Patent Laws, Product Lifecycle Lengths, and Multinational Activity. Department of Economics, University of Wisconsin.

R&D to Production 1991 – 1999 mean (OECD, 2003)

The OECD gathers and analyses information regarding economic growth and international trade among member countries. Since technology is not wide spread across an economy, the study of technology intensity impact on an economy can be challeging. In an effort to contribute to research in this area, the OECD established a classification for the industry (see more). This post presents some of the results used to determine their classification. The following table shows the mean of R&D over production for different industries during the period of 1991 to 1999 for 12 OECD countries. Below the mean for the different levels of Technology Intensity.

Reference:

[1]  OECD, 2011. ISIC REV. 3 Technology Intensity Definition Classification of Manufacturing Industries into Categories Based on R&D Intensities. OECD Directorate For Science, Technology And Industry Economic Analysis And Statistics Division.

Industry and Technology Intensity

The Semi-conductor industry, pushed by the Moore’s Law, nurtures the proliferation of increasingly sophisticated consumer electronics. Due to their daily presence in most of our lives, consumer electronics and the internet technologies cover a large percentage of main stream technology reviews.  However, there are other industries as dynamic and innovative as the two mentioned above. Do these industries affect our lives as much (or more) than information and communications technologies? The first post of Tech-Think Glass will elaborate on technology intensity (TI) definition and the industries that, besides computers and information technology, are considered as Hi-Tech.

An industry is technology intensive (High-tech) if the investment in innovation and scientific research efforts determine a firm’s competitiveness and economic value. Firms within this industry had driven economic growth, international trade and countries’ advantages. Thus, the Organization for Economic Co-operation and Development (OECD, 2011) gives special attention to its development and measurement. Table 1, shows OECD classification with R&D to value (sales) and R&D to production used as proxy (see more). These two fail to explain TI entirely (Palda K., 1986), therefore researchers suggest other estimations, example: seismic (Coccia, 2005) and multidimensional (Felsenstein , D., R. Bar-El, 1988) approaches.

Source: OECD, ISIC REV. 3 TECHNOLOGY INTENSITY DEFINITION.

A firm in the manufacturing industry regarded as more innovative, doubled the growth in net income and market capitalization of their non-innovative counterparts from 2006 to 2010 (WEC, 12). Yet, which of these products has a deeper impact in the world’s productivity and efficiency?  The product life cycle indicates that electronics, computer and office equipment have a more dynamic market (more) while the value added shows that medical, precision and optical instruments has the biggest market in terms of money (more). Still, these facts do not mean these industries helped to produce more with less driving to real economic growth.

Cannot be doubt that, information technologies are drivers of globalization and allowed more complex supply chains for manufacturing. The point to stress is that these technologies do not create value by themselves, rather open the window for new business models that can bring real benefit to the world’s wellbeing. As a matter of fact, IT allowed the existence of new services and made them to oversize the share of GDP of industry and agriculture in most of the OECD countries (OECD, 2011 B). The motivation of following posts will be to determine which technologies impact productivity and expand economic welfare.

Join me on the discussion:

Besides IT, what other high-technology industry or product you consider is following the ideal of classical economics and has a significant impact in the productivity of the world economy?

Reference:

[1] Coccia M., 2005. Measuring intensity of technological change: The seismic approach. Technological Forecasting and Social Change, 72, 117 – 144.

[2] Felsenstein D., R. Bar-El, 1988. Measuring the technological intensity of the industrial sector: A methodological and empirical approach.

[3] OECD, 2011. ISIC REV. 3 Technology Intensity Definition Classification of Manufacturing Industries into Categories Based on R&D Intensities. OECD Directorate For Science, Technology And Industry Economic Analysis And Statistics Division.

[4] OECD, 2011. OECD Factbook 2011-2012: Economic, Environmental and Social Statistics

[5] Palda, K., 1986. Technological intensity: concept and measurement. Research Policy, 15, 187-198.

[6] World Economic Forum, 2012. The Future of Manufacturing Opportunities to drive economic growth. A World Economic Forum Report in collaboration with Deloitte Touche Tohmatsu Limited.