International digital technology cycles and local economic performance

International exposure and local economic performance

Chart G 2 shows the impact that the global digital technology cycle (world factor) has on local economic performance. An increase in global activity in the field of digital technology has a positive effect on the growth of the digital sector. For example, a 1 per cent rise in the global index year on year results in a 0.76 per cent growth in value added.

This effect can also be seen in wages and, to a lesser extent, in employment and labour productivity. Interestingly, the country-specific cycles of digital technology (country factors) appear to be less important for growth in the digital technology sector. Rather, it is common global technological advances that boost a country’s digital technology industry and promote its growth.

Further analysis shows that global technology dynamics’ contribution to growth decreases if the global technological exposure of the respective country is relatively high. This could be related to the outflow of knowledge and, consequently, to intensifying global competition – although the net effect remains positive. This contribution and exposure to the global technological cycle thus enhance the performance of the domestic ICT industry.

The reverse mechanism can be observed in the case of domestic dynamics, where the contribution to growth increases with comparatively strong international exposure. This suggests that the domestic ICT industry benefits more from domestic innovation cycles when its exposure to global trends is relatively high. The reason for this positive effect is probably related to knowledge inflows from global technological developments, as researchers observe strong correlations between global dynamics and previous international knowledge flows.

In addition to the above finding, the researchers note that it is not only the relative extent of engagement that matters but also whether global engagement encompasses a broader range of technologies. The findings relating to the breadth of engagement suggest that the ICT industry of a country that is at the global technological forefront in several digital technologies can benefit more from technological synergies than the industry loses from the potential diffusion of its own knowledge.

The US as a positive example of synergies in the technology sector

One striking example of this is the United States, which is a leader in areas such as artificial intelligence, cloud computing, semiconductor technology and quantum computing. Drawing on their broad-based technological expertise, US firms can exploit synergies between these technologies to develop innovative solutions that are competitive in the global market. There are thus advantages for first movers when technological activity is broad-based and the ICT industry makes a substantial contribution to the global technology cycle.

A technologically diverse ICT industry is required in order to properly process the flow of knowledge from abroad and develop internationally competitive technologies in individual digital fields. Products and services based on these more complex technologies, such as autonomous driving, are more difficult to replicate as they require the integration of machine learning, advanced sensor technology and extensive real-time data processing. This creates sustainable competitive advantages and the observed positive relationship between strong exposure to the international technology cycle and the economic performance of the local ICT industry.

Data basis and method

A global patent dataset covering the 35 years between 1980 and 2015 is used as the data basis. Geocoded inventor and applicant data is used to assign country information to the individual patent families. Furthermore, a classification of technological fields is used to delineate detailed ICT (information and communication technology) areas. Annual patent information on 29 countries, which mainly belong to the OECD, is supplemented with four economic indicators: value added, employment, wages, and labour productivity. This data is used to calculate the global technology index and the analysis based on it. The technology index is determined using dynamic factor analysis, a procedure that breaks down the patent dynamics in ICT technologies into global, country-specific and technology-specific effects. This analysis involves identifying common movements, which enables a deeper understanding of the interrelated fluctuations between different data series.