The Macroeconomic Impacts of E-Business on the Economy

Abstract

The growing use of information and communications technology (ICT) by business-ebusiness-profoundly affects the economy. This article covers some of the macroeconomic impacts of e-business. Evidence from empirical studies examining the impact that greater use of ICT by business has on productivity and national economic growth is presented, along with discussion of how e-business changes the volatility and complicates measurement of growth. E-business can bring down inflation, but also exacerbates some monetary and fiscal policy challenges, and raises new ones. While e-payments and emoney can complicate monetary policy and may alter its goals, little effect has been seen to date. Sales tax leakage due to e-commerce can affect the fiscal policy of states, although again the magnitude of lost revenue is not great. Suggested directions for future research close out the article. This paper is an expanded version of an article that will appear in Encyclopedia of E-Business Development and Management in the Digital Economy, edited by I. Lee, Hershey, Pa: IGI Global. After publication (expected 2010), please cite the book chapter instead of this working paper.

E-Commerce Growth and the Changing Structure of the Retail Sales Industry

“…Brynjolfsson and Hitt (2002) contend that in the long run the use of ICT by business also spurs growth in total factor productivity (TFP), that part of output associated with the qualitative improvement in technology and not the measurable input usage. Heil and Prieger (2009) articulate the impact of ICT on e-commerce by noting that ICT does not merely add to the physical capital stock of a firm, but can transform the nature of the entire production, sales, and distribution process. ICT thus increases productivity, enhances competition and broaden consumers' choice.…”

“…1 Litan and Rivlin (2001) articulate the impact of the Internet on the entire economy and Kauffman and Walden (2001) emphasize the importance of the application of economic analysis and statistical techniques. Bakos (2001), Heil and Prieger (2009), and Willis (2004) identify several factors contribut-ing to the growth of electronic business, these include: (i) the growing use of information and communication technology (ICT) which positively impact productivity and economic growth through lower search and transaction costs and the efficient use of resources, (ii) the increasing productivity of firms, the enhancement of market and competition, and increasing consumer welfare, and (iii) the advantages over conventional ways of selling, such as low transaction cost, more efficient distribution and greater market access. These are mainly supply side factors, an examination of demand side factors will provide a deeper understanding of the dynamics of the market and adds to the existing research literature.…”

“…3 Earlier studies of the demand for retail sales, for example, Hymans et al (1970) and Liu (1970) find real income to be the dominant independent variable. An advantage of the methodology is the offering of a better understanding of the demand side factor that explains e-commerce growth since previous studies (Bakos, 2001;Heil & Prieger, 2009;Willis, 2004) analyze supply side factors.…”