Not only Nokia. What Finland tells us about New Economy Growth

Is there a relation between information technologies and the growth rate of productivity? Is this relation mainly due to the efficiency-enhancing effects of few leading industries or rather to the pervasive spreading of IT throughout the economy? Our country study on Finland in the 1990s is a contribution to shed light on these issues. We find that Nokia, the world leader in cellular phone production, directly and substantially contributed to enhance productivity growth in Finland. Productivity growth gains outside Nokia and few other IT-related service industries have been small, temporary, or non-existent at all, though. We also provide two pieces of evidence against the existence of technological spillovers between Nokia and the other fast-growing industries in the Finnish economy. As shown by the Finnish input-output table, the thinness of the inter-industry linkages between the Nokia industry and the rest of the economy indicates that productivity gains of the size recorded in the few other fast-growing service industries can be associated to Nokia’s productivity boom only to a very small extent. Parallel statistical analysis also shows a striking association between the timing and the industry distribution of productivity gains and the declining pace of the price of machinery and equipment investment goods in those industries. This is evidence that TFP growth increases in those industries should be mostly attributed to the decline in the world price of computing power. Altogether, we interpret our findings as showing that, even in a country endowed with a world-class national champion and a policy environment commonly thought of as conducive to growth, a ‘new economy’ takes a long time to show up. Unlike commonly held tenets, IT diffusion has shown a limited potential in speeding up this process in Finland.