Even if there is a connection between information and communication technology (ICT) and growth in the European economy has been understood, specific policy measures describing how ICT can power growth are often too generic. While much of the debate has zoomed in on the level of digital investments, this policy brief offers a framework for considering more tailored policy recommendations. Countries need to focus on exploiting their comparative advantages in the data economy and everyone cannot be a leader in the endowment of data. Policy attention is also needed for so-called intermediating policy factors that can improve economic performance through ICT in non-digital sectors. Increasing a country’s digital investment is one thing, but much of the factors that will have a real impact on the link between ICT capital and economic growth is country-specific and requires careful analysis and tailored policy reforms.
Digital investment and the use of data are increasingly important to the health of the economy. It is beyond doubt that many business models of European firms critically depend on the use of digital trade and cross-border data transfers. It has also become clear that consumers across Europe are benefitting more and more from the use of the internet.
However, not all countries tap into the digital economic opportunities that lie in front of them and there are several barriers preventing individuals, firms and entire economies from reaping the potential gains. Nor do all economies unite in the prospects for what type of growth that could follow on greater data investment and for those countries that want to raise the economic impact of data, it is important to understand their potential and the tailored policy conclusions that follow from it. In other words, there has to be a coherent policy framework for policy makers. This brief tries to do that. It connects several recent papers that have addressed the issue of digital investments and extends discussion on their issues covered, which are data, software investments, how it can induce economic growth within the EU, and what kind of policy reforms are subsequently needed.
In all of these previous works, the connection is made between the use of Information and Communication Technology (ICT) and its effect on economic performance. First, Hofheinz and Mandel (2015) show that investments in so-called “intangibles” are correlated with the production and use of data within an economy. Intangibles are investments made by firms in, for instance, research and development (R&D), computerized information, product development or training, and branding. This link between intangibles and data is important as it generates new sources of economic growth. This happens in part because these new types of investments had not been properly accounted for by economists in the past and have become increasingly important for firm revenues and earnings.
Second, in a previous paper, I have gone a step further and showed what policy measures should be considered in order for ICT to improve economic performance. More specifically, I have analyzed which specific policy measures are needed for economic growth to happen with the use of one type of intangible investment that is related to ICT, namely computerized information (i.e. software). Much ICT investments takes place in non-digital sectors and therefore additional policy measures are required to enhance growth. Finally, a third paper by Bauer and Erixon (2016) also takes up this angle and puts forward the importance of competition-enhancing reforms in non-digital sectors as necessary to enhance potential growth from the increased use of ICT.
In sum, each of these three works show the importance of digital investments and economic performance in Europe either directly or indirectly, but a supporting structure on how to think about this these issues has been to date somewhat missing.
 The papers are Van der Marel (2015), Hofheinz and Mandel (2015) and Bauer and Erixon (2016).