The Economic Impact of Digital Structural Reforms

Abstract:
This work aims to contribute to the policy debate on how to spur "digital growth" in Europe in the context of the crisis, by assessing the potential economic impact of structural reforms efforts either already undertaken or imminently foreseen in the field of European digital markets. Namely, this is done by analysing the growth effect of European reforms in the areas of radio spectrum, professional e-skills, eCommerce, and fixed broadband take-up. Each policy area is analysed separately, in the first place by hypothesizing and econometrically testing specific “transmission channels”, i.e. the direct impact of selected reform variables on intermediate economic outcomes, such as prices and productivity.

In the second place, the price and productivity shocks estimated on the basis of the actually observed change in the reform variable (as a proxy for the countries’ reform effort) are fed into QUEST III to simulate macroeconomic impacts on GDP. Despite their heterogeneity, the importance of analysing these reforms together lies in the possibility of shedding light on the overall economic impact of fostering specific aspects of the Digital Single Market in the EU.

Indeed, summing up the simulated macroeconomic impacts for different policy areas shows that the long-run growth impact of the already observed digital reform effort is above 1%, and that further efforts in line with the Digital Agenda for Europe targets would entail additional 2.1% of GDP growth over the baseline. From a methodological point of view, the findings highlight the importance to test the adequate functioning of the microeconomic transmission channels through which digital structural reforms could exert their overall macroeconomic impact.

European Commission: DG Economic and Financial Affairs:European Economy: Economic Papers No.529, September 2014:The Economic Impact of Digital Structural Reforms http://ec.europa.eu/economy_finance/publications/economic_paper/2014/ecp529_en.htm

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