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e-Business in the chemical, rubber and plastics industryExhibit 4.1-8: Parameter estimates of a stochastic possibility frontier (SPF) for chemicals(NACE 24 + 25), error component model, 1995-2004Gross Production Value per Total Working Hours based on EU-16 1 Multi-Country-PanelExplanatory variables parameter standard-error t-valueConstant 0.22 0.04 5.58Intermediate Input per TWH 2 0.84 0.02 39.89ICT-Capital Stock per TWH 2 0.02 0.01 3.09Low-Skilled-WH per TWH 2 0.04 0.01 2.52Medium-Skilled-WH per TWH 2 0.02 0.01 1.41sigma square 0.16 0.06 2.65gamma 0.98 0.01 98.10eta -0.01 0.01 -2.20Log-Likelihood 180.1No. of iterations 281 EU-16 - Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Hungary, Italy, Luxembourg, Netherlands, Poland,Slovenia, Spain, Sweden, UK2 TWH - total working hoursSource: EUKLEMS database of GGDC, own calculations. DIW Berlin 2008Looking at the significance of the estimated parameter values one observes that the leastsignificant output elasticity has to be attributed to the medium-skilled labour intensity. Allother parameter values listed in Exhibit 4.1-8 are found to be significantly different fromzero at the 5% significance level. 124 High-skilled labour and non-ICT-capital intensities arenot included here since they were found to be insignificant even at the 10%-level.The results obtained from the SPF-analysis indicate a moderate impact of physicalICT-capital investment on labour productivity. Furthermore, the highly significant impactof non-ICT-capital investments that was found in the growth accounting analysis cannotbe confirmed. A key driver for labour productivity growth based on gross productionvalues per working hours is found to be related to the intensity of intermediate inputssuch as energy, materials and services (the respective output elasticity is 0.84).This high value might be attributable to the productivity enhancing of outsourcing ofactivities in the CRP industries. By focussing on the core competencies and outsourcingthose activities where companies in this sector and in a particular country lackcomparative advantages, they can improve their efficiency significantly. Restructuringbusiness activities according to the make-or-buy decision suggested by Coase’s theory oftransaction costs (Coase 1937) can contribute significantly to productivity growth in theCRP industries. This aspect has been neglected in studies which exclude intermediateinputs from their analysis.Finally, no significant average annual rate of technical progress for the commonpossibility frontier was found (see description of the approach in Annex II) for the CRPindustries. This again is in contrast to the results of the growth accounting analysispresented in the previous section. However, in growth accounting, intermediate inputshad been omitted from the analysis; this may have shifted their highly significant impacttowards the TFP-growth rate as a residual. In any case, intermediate inputs are a keydriver for efficiency enhancing innovations in the chemicals industry. A more detailedanalysis of this specific issue, where the impacts of the different components of124 t-values above 2 assure by a rule of thumb this 5%-signficance threshold of the test.107
e-Business in the chemical, rubber and plastics industryintermediate inputs on productivity growth in the CRP industries are disentangled, can befound in another Sectoral e-Business Watch study of 2008 on "ICT implications forenergy efficiency". 1254.1.4 Summary: ICT impact on productivity growthThis section analysed by means of econometric tools to what extent ICT adoption(measured as ICT capital investments) contributes to growth of gross value added andproductivity. The results indicate that ICT capital by itself is not the main element, butrequires complementary investments and organisational innovation.Growth accounting for the CRP industries in 9 EU Member States suggests thatthe key components of growth in this sector (in terms of gross value added) aretotal factor productivity growth, growth in capital investments and changes in labourquality (i.e. a higher skilled workforce).Non-ICT-capital investments contributed to a higher extent to value added growthin the CRP industries than those in ICT-capital, although ICT-capital alsocontributed positively in most of the nine Member States.However, ICT can be embedded in other infrastructure, for example in the complexequipment of chemical plants. Thus, there is probably a "hidden ICT-impact"which cannot be measured by means of the data on ICT-investment available inthe database.A key driver for labour productivity growth (measured as gross production valueper working hours) is found to be related to the intermediate inputs intensity.No significant average annual rate of technical progress towards the estimatedpossibility frontier was found: this implies that the time lag between ICT investmentand visible impacts on productivity can be considerable.These observations have implications for policy. They suggest that investments intraining and skill-formation are at least equally important as investments in ICT capitalthemselves in order to realise the optimal benefits. In other words, in a knowledgeeconomy driven by rapid technical change, the ability to empower the work force is anecessary complementary measure to ICT adoption. Without having the right skills inplace, costly investments bear the risk of becoming ineffective. Thus, revisiting the twoinitially specified working hypotheses (see Section 4.1.1), these cannot be confirmed:125 see www.ebusiness-watch.org.108
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