Marcin Piatkowski

The Contribution of ICT Investment to Economic Growth and Labor Productivity in Poland 1995-2000

There is large evidence on a positive impact of information and communication technologies (ICT) on economic growth and productivity in a number of developed countries in the 1990’s. There are however no studies, which would estimate the contribution of ICT to growth and productivity in post-communist, transition economies. Data availability, consistency, and trustworthiness have been so far the main obstacles. This paper makes a first attempt, based on an extended growth accounting framework, at estimating the contribution of investment in ICT to output growth and labor productivity in Poland, the largest post-communist economy in Central and Eastern Europe and a prospective member of the EU (2004). The paper discusses the challenges of using available data and its impact on the choice of specific methodologies. The paper shows that ICT investment contributed on average 0.47 of a percentage point or 8.9% of GDP growth and 12.7% or 0.65 of a percentage point contribution to labor productivity between 1995-2000. This relatively large impact of ICT capital is due to an extraordinary acceleration in ICT investments between 1993-2001 induced by – one the one hand – rapidly falling prices of ICT products and services and – on the other hand – large demand for ICT fueled by high economic growth in the 1990’s and substantial pent-up demand due to infrastructural underinvestment in ICT.

Does ICT Investment Matter for Growth and Labor Productivity in Transition Economies

Following up on a previous paper by the same author on the contribution of ICT capital to growth and labor productivity in Poland 1995-2000, this paper extends the study to eight transition economies: Bulgaria, Czech Republic, Hungary, Poland, Russia, Slovakia and Slovenia. The paper shows that the contribution of investment in IT hardware, software and telecommunication equipment to output growth and labor productivity between 1995 and 2000 in most countries featured in the study was much higher than what might be expected on the basis of the level of their GDP per capita. This may suggest that the transition economies – through the use of ICT - are benefiting from the technological leapfrogging to increase the growth rates in output and labor productivity and hence accelerate the process of catching-up. The relatively large contribution of ICT capital to output growth and labor productivity is due to an extraordinary acceleration in real ICT investments, which were growing between 1995 and 2000 at an average rate of more than 20% a year for almost all countries in the study. Large investments in ICT seem to have been induced by (i) falling prices of ICT products and services, which encouraged companies to substitute ICT for non-ICT capital and (ii) an opportunity for higher-than-normal returns on ICT investments due to a large pent-up demand for ICT infrastructure, a legacy of decapitalization and technological gap existing before 1989.

Poland's new golden age : shifting from Europe's periphery to its center

The objective of the paper is (i) to help fill the gap in knowledge on the long-term economic history of Poland; (ii) to provide a new perspective to the debate on the economic future of Poland, with a special focus on its historically unprecedented post-transition growth experience; and (iii) to analyze critically long-term growth projections for Poland. The paper argues that (i) Poland has just had probably the best 20 years in its economic history, growing the fastest among all European economies and one of the fastest worldwide; (ii) by 2013, it Poland achieved levels of income, quality of life, and well-being likely never experienced before, including relative to Western Europe, a natural benchmark; and (iii) Poland is well placed to continue converging with the Western European levels of income, permanently moving from the economic periphery of Europe, where it languished for centuries, to the European economic center. The twenty-first century thus promises to become Polands new Golden Age. The paper calls for further research on the lessons from Polands successful growth model for other countries in the region and beyond as well as on the long-term implications of the rise of Poland for the future of Europe.

Can ICT Make a Difference in the Development of Transition Economies

Since 1995, information and communication technologies (ICT) have contributed to faster GDP and labour productivity growth in a number of developed countries, particularly the US. This has been shown by numerous research studies on the impact of ICT on the macro, industrial and micro-level.1 Despite the collapse of the ‘Internet bubble’ in 2001, fast growth in productivity spurred by ICT has not been arrested. Recent estimates of the US Department of Labor (2004) show that labour productivity growth in the US during 1995–2004 was more than twice the average of the previous two decades. Jorgenson et al. (2004) project that this high productivity growth will continue until 2010.

Leveraged Buyouts in Poland

The dynamic transformation of the Polish economy from a centrally planned to market economy is by now well advanced. The transformation has also contributed to a rapid development of the capital market. However, the leveraged buyout market has hardly been developed yet. The leveraged buyout technique allows investors to take companies over with little of their own capital. Most of the total value of a transaction is financed with debt, which is secured by assets and cash flow of a company being taken over rather than a buyer. Companies bought through leveraged buyouts (LBOs) substantially increase their return on equity (ROE) thanks to an increase in operating efficiency, higher debt leverage and better allocation of assets. In consequence of the substantial improvements in companies’ performance, LBO transactions can yield extraordinary benefits to both existing shareholders and LBO investors. A case study of a hypothetical leveraged buyout of a Polish public company listed on the Warsaw Stock Exchange highlights the extraordinary returns available to existing shareholders as well as buyout investors. The case study also analyzes the whole process of a leveraged transaction in order to prove its feasibility in the Polish market. Finally, it speculates on the improvements to the company’s performance in the wake of the leveraged buyout. Microeconomic improvements at the leveraged firm level translate into large benefits to the whole economy. On a macroeconomic level, leveraged buyouts contribute to better allocation of capital and higher efficiency of the economy. Leveraged buyouts through replacement of equity capital in post-LBO companies with debt, contribute to freeing scarce equity capital away from declining, low-value added industries into high-risk, high-value added emerging industries, which could not be otherwise financed with debt. Leveraged buyouts can be successfully used in post- socialist countries as a potent tool for acceleration of their economic restructuring. Since efficiency of companies in post-socialist countries as measured by ROE is much lower than in the developed countries, LBOs offer higher benefits to post-socialist countries than to developed countries.