Intermediate Input Markets, ICT and Innovation in Germany: A Firm Level Analysis

During the last 20 years developed economies have evidenced an increase in their expenditures on information and communication technologies (ICT), and there is ample evidence indicating that the diffusion of ICT has contributed to their productivity growth. This positive impact has been explained by the role of ICT as “enabling” technologies, allowing firms to optimize their internal organization, redesign production and commercial processes and introduce new products and services.

In the economic literature, ICT have been regarded as general purpose technologies (GPT). These technologies are viewed as drastic innovations characterized by their pervasive use in a wide range of economic sectors, as well as by their considerable potential for the development of complementary innovations and applications. In addition, given their technological complexity, the implementation of new GPT entails a process of experimentation subject to adoption externalities and knowledge spillovers. The former are evidenced when the attractiveness of a given technology is further increased when many firms use the same technology and experiment in the same direction (i.e. network effects), while the latter arise from the experience over time of other firms with the same or similar technologies.

In consequence, the process of adoption of ICT is a knowledge-intensive and costly process, whose success depends on a firm’s own efforts, as well as on the nature of its interactions with other firms. This paper argues that some important economic interactions relevant for the diffusion of ICT take place in the intermediate input markets. More specifically, the paper empirically studies the impact of ICT on the economic performance at the firmlevel, explicitly considering the interaction of adopting firms with their suppliers, competitors and clients.

The results show that the adoption of ICT at the firm level is positively affected by the use of ICT downstream and upstream (i.e. by a firm’s clients and suppliers). Moreover, the use of ICT upstream (i.e. by a firm’s suppliers) negatively affects the extend of IT outsourcing at the firmlevel, suggesting a substitution effect between inputs provided by suppliers with an intense use of ICT and a firm’s demand for external IT services. The paper also finds that the use of ICT within the intermediate input markets positively affects the efficiency of internal processes by increasing the cost reductions generated by the introduction of process innovations.

Cerquera, Daniel and Gordon Jochem Klein (2013), Intermediate Input Markets, ICT and Innovation in Germany: A Firm Level Analysis, ZEW Discussion Paper No. 13-013, Mannheim.