The Impact of ICT Investment on UK Productive Potential 1986-2000: New Statistical Methods and Tests

The effect of information and communications technology (ICT) and other investment on the UK's GDP potential is analysed and tests of the standard assumptions are provided. It is found that, in the absence of hedonic price series for the UK ICT sector, it is acceptable to use surrogates based on the law of one price. The investment data are consistent with the assumptions of optimality and homotheticity. So, in the absence of quality–adjusted measures of labour supply, it is legitimate to assess the contribution of investment to GDP potential independently. Capital investment increased UK GDP potential by about 1½ per cent per annum during 1985–2000.