How do we measure the digital economy?

Results of the economic footprint research and the newest methodology for the measurements of digital economy and an innovative new methodology from Hungary

 

The holistic digital economy- that influences everything

In mandate of IVSZ, macroeconomists of the Századvég Research Institute have developed a new methodological framework, that is capable to recognize the digital activities of companies other than ICT firms. In cooperation with IVSZ, Szazadvég Research Institute elaborated on the topic and established recommendations for a more effective  digital economy.

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Digital transformation inevitable influences every aspects of economic and social processes, however the analysis of the ICT sector   is becoming less and less relevant for determining the significance of the digital ecosystem. As the results indicated it is nearly impossible to realize and represent the real economic value and size of the Hungarian Information and Communication Technologies sector with conventional statistical measurement tools.The research targeted to show the absolute dimension of the Hungarian digital economic footprint.  According to Both Vilmos, the findings do not represent the actual size: “the digital economy is not the size as it was indicated”.  The paradox might arise from the classification of the companies by their activity at KSH and Eurostat, as they put themselves into categorizes based on their highest profit segments. Like a bank or car manufacturer is not going to be regarded as an ICT firm despite their significant IT and R&D activities. Overall, due to the digital transformation, an increasing number of companies relocate their operations to digital bases.

 

Economic footprint of the digital economy

Since the scope of digital economy includes  more complex processes, from machine-to-machine communication (Internet of Things – IoT) through technologies integrated into the production and sales processes of each industry (embedded technologies) and various Big Data applications to digital town projects, the role of the digital economy as a multiplier,  cannot be described comprehensively using the induced and collateral effects either.

The current statistical and other enumeration systems are incapable to take full account of these phenomena related to technological development, so the exact size of the digital economy cannot be determined by the statistical methods previously applied in international literature.

 

Methodology applied for the research

As a result of the digital transformation, nowadays rather than analyzing the ICT sector its bettor to analyze the impacts of the digital economy.  Accordingly, there was a need for a system that does not investigate digital activities of ICT firms solely, but considers non-ICT firms digital activities also. Therefore, a strict criteria system was established and kept during the whole process. The criteria system included four important aspects including: the measurability of indirect economic effects, depiction of non-monetary economic values,  comparability and universality: the indicator can be calculated and is applicable to other economic sectors and the Hungarian national economy and   measurability: the data necessary for calculation should also be available in respect of Hungary. After substantial and detailed research, research methodology based on the balance of intersectorial relations (BIR).

Further, the new  methodology which is unique on an international level also integrates four kind of effects(effect on suppliers, employees, users and on investment) into one single indicator.

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Results

Gross value added contributions

  • The ICT sector produces 640 billion EUR Gross Value Added yearly
  • It is 5.4% of the total GVA in the European Union
  • The high contribution of the Hungarian ICT sector (6.8- 8.1%) to the entire GVA places Hungary into a dominant position among countries like the UK, Ireland or Sweden leaving behind many competitor countries.
  • Direct GVA production of the ICT sector in 2013 was 7.2% of the total GVA.
  • Digital economy contributes 20% to the total national GVA, including all the direct and indirect affects.

 

 Contribution to the employment

  • The ICT sector in Hungary provided employment to 310 000 people in 2013, this was 11.5% of the total employment rate .
  • Compared to other European countries, Hungary with this number is among the top countries.

 

Export, investments and R&D

  • Right after car industry the Hungarian ICT sector exports the most
  • 6% of the total export
  • Further, the sector has a serious role both in investments and R&D activities.
  • ICT provided approximately 3.8% of the total investments per year between 2008- 2013
  • The total ICT sector also contributed more than 10% to the Research and Development expenditure in 2013

 

To conclude, we would like to emphasize the importance of the digital economy and the fact that all sectors must follow and interpret the ICT trends in order to remain compatible in the market. Furthermore, as the findings indicate approximately 22000 IT experts are missing from the Hungarian market. Therefore, we would like to highlight the importance of education with special focus to the information technologies; the development of the digital economy is only possible with an active digitally educated society. Moreover, it is the only sector, that if it develops employment and competitiveness increases accordingly. Finally, Hungary has the proper conditions and base to become one of the winners of the digital economic development.