ICT diffusion and economic growth in New Zealand By Kenneth I. Carlaw 1 Department of Economics University of Canterbury Private Bag 4800 Christchurch, New Zealand kenneth.carlaw@canterbury.ac.nz and Les Oxley Department of Economics University of Canterbury les.oxley@canterbury.ac.nz Two different theoretical treatments of technology diffusion in an economy are examined. The traditional model based on the aggregate production function approach first introduced by Solow (1957) assumes technology is unstructured and arrives as a continuous exogenous flow. This model predicts that the diffusion of new technologies will be contemporaneously correlated with growth in economic performance indicators. An alternative view explicitly models technological structure in the form of complementarities. It also incorporates the observation that new general purpose technologies (GPTs) invariably emerge in a crude form lacking many of the complementary technologies that enable them to become productive. This view predicts that when new technologies emerge costly investment in developing complementary technologies must take place and thus there will be a lag between the new technology’s introduction and observed growth in economic performance indicators. These two views articulate two general empirically testable hypotheses that are captured in a number of specific tests. One such test measures diffusion of information and communication technologies (ICT) as an independent phenomenon and compares its times series pattern to that of the growth of productivity in New Zealand. New Zealand’s experience in consistent with other OECD economies where the diffusion of ICT has occurred at the same time as a productivity slowdown. Another test measures relative ICT-skilled labour demand. Although the evidence is weak, findings support the non-traditional view’s prediction that ICT-skilled labour will increase with the diffusion of ICT technology in New Zealand. 1 The authors wish to acknowledge funding support for part of this research from the National Office for the Information Economy, Australia, consultancy project "ICT in Australia's Economic Performance: An investigation of the assumptions influencing productivity estimates" and the Foundation of Research Science and Technology, grant FRST-ICT Project UOWX0216. .