The Role of ICT Productivity in Korea–Japan Multifactor CES Productions and Trades

Discussion Papers

No.747

by Jiyoung Kim, Satoshi Nakano, Kazuhiko Nishimura

March 2019

ABSTRACT

In this paper, we examine the economic impact of information and communication technology (ICT) innovation, under the general equilibrium framework, with empirically estimated constant elasticity of substitution (CES) production frontiers. Innovation can generate not only productivity growth and price changes but also changes in the economic structure of production and trade patterns, eventually increasing social welfare. To study such impact of ICT innovation, we construct a bilateral general equilibrium model, spanning 350 commodities and sectors with trades between Japan and the Republic of Korea (South Korea). We estimate all CES parameters from published statistics such as the linked input–output tables and Comtrade databases. A small exogenous productivity shock in ICT is examined in terms of potential price reduction in all commodities in both countries.

Keywords: CES Production Function, Linked Input–Output Tables, Information and Communication Technology, Armington Elasticities, General Equilibrium Modeling

JEL classification: C67, D57, D83, F19

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