The 'true' impact of growth rate of the computer sector on the growth rate of the whole economy is impossible to measure. The reason has to do with how real series (real GDP, real compensation, etc) are generated. Suppose you have 2 sectors in the economy: computers and food. Suppose you select 1990 as your “base year.” Among other things, this means that you determine the “size” of the two sectors according to the relative spending on the two items. Suppose that in 1990, then, 10 percent of spending went to computers and 90 percent went to food. The computer sector is 10% of the economy while food is 90% of the economy. The growth rate of the economy would then be 10% times Cg plus 90% times Fg, where Cg and Fg are the growth rates in computers and food. Let’s say that nominal spending remains the same in the two sectors between 1990 and 2000. (BEA data seems to suggest that nominal spending on computers was fairly constant between these years, but this seems odd to me). Suppose also that productivity/quality advances in computer is such that the “true” size of the computer sector is now 50% of the economy and food has fallen to 50%. The new productivity rate for the whole economy is now: 50% times Cg plus 50% times Fg. The computer sector’s higher growth rate now plays a greater role in boosting the growth rate of the whole economy. Putting hypothetical numbers into the above: Suppose the computer sector productivity is always 10% and that in food is always 2% In 1990 the economy-wide productivity will be: 10% times 10% plus 90% times 2% = 2.8% But in 2000 the growth rate of the whole economy will be larger because the computer sector has grown in importance and its growth rate is now weighted more: In 2000 the economy-wide productivity will be: 50% times 10% plus 50% times 2% = 6.0%. That is, the growth rate has sped up not because any individual industry become more productivity but simply because the more productivity industry grew in relative importance. Now let’s say that we decide to use 2000 as the base year. Because nominal spending on computers and on food in 2000 is the same as in 1990 (I assumed this above), the weights for the two sectors is now: computer = 10% and food = 90%. The new economy-wide growth rate is, then: 10% times 10% plus 90% times 2% = 2.8%. The growth rate has fallen back to 1990 levels because the 2000 and 1990 spending levels were the same! It seems the computer industry just ain't as important as it once was when 1990 was used as the base year. This example shows that the impact of the computer industry on economy-wide productivity spends on the base year chosen. Those close to today the base year is, the smaller the role computer productivity has on the economy-wide level fo productivity. Conclusion: take with a grain of salt any estimate of economy-wide productivity growth. Such a number depends on the nominal spending within the different sectors in the base year chosen. Similar sort of things happen with the construction of price indexes and in the construction of most any real series with more than a single component. Eric
