Measuring information as an expanding resource: Information production and its TFP-information absorption ecosystem “multiplier”

Abstract

Indices to measure the extent and penetration of information in an economy are static measures. Information, however, is a dynamic, expanding resource. Information is produced when data from digital computers articulate with human-generated systems where they are transformed into information. Economic information is effective when it fuels technological innovations contributing to total factor productivity (TFP) growth. This paper develops a theoretical model to measure effective economic information (EEI) as a dynamic process. Using systemic design thinking, design systems in data value chains are embedded within their TFP-information absorption ecosystem. The system's characteristics of human capital, economic, institutional, and regulatory factors determine the quality and amount of EEI produced. The EEI measurement model uses differential equations allowing for the dynamic expansion of information to include information-knowledge spillovers. Empirical tests for EEI on TFP for EU countries show that EEI is the key driver for TFP growth, while IT investment alone is only a necessary condition. EEI-type measures direct policy attention towards improving TFP-information absorption ecosystems and supporting the adaption of design processes that are more suitable for their TFP-information absorption ecosystems. Both are necessary to connect IT investment to TFP growth.