This paper analyses the importance of the ICT sector, and in particular the Software sector, for the European economy. It does so by looking into the question of how value-added is created through the lens of improved productivityand competitiveness using ICT in various European economies. In analysing these channels of value-added, this paper looks specifically into how complementary policies play a crucial factor in the employment of software in order to enable a significant effect on economic growth. Examples of these complementary policies are various and vary from labour market regulations to product market regulations. As a result, this paper shows which of these additional policy measures can further benefit the European economy whilst employing software and other ICT-related services. In doing so, this paper has developed and used two research methodologies which are presented in the annex of the paper and of which only the results are shown in the main part of this work.
The importance of Information and Communication Technology (ICT) for European economies has been increasingly recognised over the last two decades (EC, 2014; van Ark, 2014a; EIB, 2011). The role of ICT, which includes computer, software, and data processing services activities as well as other computerised information such as databases, is significant in the economy as it acts as a vehicle to improve productivity and value-added. As the impact for boosting growth in advanced countries through increasing factor input accumulation is likely to be limited in the future, attention should be given to how efficient these factor inputs, such as labour and capital, are actually allocated. Factor inputs have a more important impact on growth in developed countries when they are used more efficiently, rather than its accumulation in quantity. An important element in this efficiency-enhancing process is precisely ICT as it improves the way in which all these input measures are effectively employed in the economy.
An additional characteristic of ICT is that it forms an important driver for innovation and knowledge-based activities, which in turn further increases economic growth. For instance, the growth of the software sector and its productive use in developed economies industries’ has been a strong factor explaining overall economic growth over the last years. In large part this is because software interacts with many other types of so-called intangible assets, which are sources of growth and for which the use of software is indispensable. Examples include research and development (R&D), capital dedicated to organisational change or business process investments, which are all closely linked to innovation.Hence, these activities have a more pronounced effect on growth when put in combination with ICT and software. All these intangible capital factors, of which software itself is also one of them, have recently generated much attention from both the policy and research literature as it forms new types of sources for economic growth (OECD, 2013c).
With this economic framework in mind, this paper analyses the importance of the ICT sector, and in particular the software sector, for the European economy. It does so by looking into the question of how value-added is created through the lens of improved productivity using ICT in various European economies. In analysing this channel, this paper looks specifically into how complementary policies play a crucial factor in the employment of software in order to enable a significant effect on economic growth. Examples of these complementary policies are various and vary from labour market regulations to product market regulations. As a result, this paper shows which of these additional policy measures can further benefit the European economy whilst employing software and other ICT-related services. In doing so, this work has developed and used a research methodology, which is presented in the annex of the paper, and of which only the results are shown in the main part of this work.
The question of how complementary policy can play a significant role for the ICT sector in the EU is an important one as the pool of knowledge and assets in this sector is not equally spread across European countries. Figure 1 shows that although the average software stock per worker in the EU for which we have data is around 1700 USD, this figure masks important differences across European economies. For instance, Denmark retains more than four times as much accumulated software capital stock as Italy, Sweden has almost three times more software levels as Germany, and Great Britain has almost twice the amount of software capital than Spain. These differences in software are stark and are reflected in the overall economic growth performance. However, these differences cannot solely be explained by countries’ economic structures or because a country like Denmark just puts more software in its economy. Explanations for why countries use more software must therefore also be found in the policies these countries apply. Hence, complementary policies have important implications for the extent to which countries can generate growth in their economies through the use of software.
Source: author’s calculation, intan-invest, WB WDI and TiVA; investment figures are deflated using appropriate software deflators and calculated according to the perpetual inventory method with appropriate depreciation rate according to Corrado et al. (2012). Data refers to 2010, which is the latest year available.
The various additional policies are also likely to explain how competitive the ICT sector is itself in European economies. When looking at the value-added that is generated within the software and computer services sector, Figure 2 points out that although the EU holds a relatively high share of more than 33 percent of global value-added in this sector, each country’s share within the EU in this sector is unequally distributed. By way of example, Ireland holds a much larger share of ICT services compared to Belgium whilst Greece, as well as Portugal, only holds a minor stake of the value-added generated in this sector in Europe. Again, one significant factor in explaining these differences in competitiveness of the computer and software sector for each country needs to be found in the various complementary policies these countries apply. For instance, countries in Europe having strong policies to protect patents or encourage the diffusion of private credit for entrepreneurs are more likely to experience greater value-added growth in the ICT sector.
Yet, this paper is interested in how complementary policies can generate productivity in industries using software and ICT rather than in the ICT sectors itself. Therefore, the remainder of the paper is organised as follows. The next section explains briefly why complementary policies are an important vehicle for ICT, and in particular software, to have an impact on productivity and, eventually, growth. Section 3 shows some figures on productivity and software across European economies with new data that has become available in recent years. Section 4 shows the results of our study that are found from analysing which complementary policy measures in Europe have a significant effect on how industries use software services and can therefore increase productivity. We do this for software services only because of data availability and because this sub-category of the ICT sector is found to have an important effect for productivity, as previously mentioned and as discussed in Corrado et al. (2014, 2012). Finally, the conclusion of this paper will discuss the policy outcomes from our study in more detail within a European policy context.
 Other types of intangible assets that has been put forward in the economic literature are innovative property, economic competences, scientific research and development (R&D), new architectural and engineering designs, new product development costs in the financial industry, entertainment, artistic and literary originals, market research and advertising expenditure, training and finally organisational capital. See Corrado et al. (2014) for further insights on these measures. Moreover, software or ICT in general is a so-called general purpose technology that helps industries and firms to develop other innovations and reorganisations.
 These figures are based on 2011 which is the latest year available.