System dynamics approach for the economic impacts of ICTs: evidence from Macedonia

Abstract

Measuring the impact of Information and Communication Technologies (ICTs) on the economy is a major challenge and a research question standing at the forefront of economics in the past years. In terms of methodologies, two approaches have been followed extensively, i.e. the standard growth accounting methodology and the regression-based models. This paper aims at developing an alternative approach to studying the usage and impact of ICTs. For this purpose, a two-step methodology is proposed here. At first, hierarchical cluster analysis is used to provide an objective clustering of countries (Macedonia and EU-28) according to 53 indicator values/scores of the Networked Readiness Index. Furthermore, a system dynamics model is proposed to simulate the evolution of the NRI indicator values for Macedonia. This second step allows for examining the potential of the country to improve its rankings on a global scale and thus, become better at leveraging ICTs for increased competitiveness and well-being. Beyond the rankings, the proposed methodology can serve as a useful guide for those attributes Macedonia should focus on in order to improve its position relative to other countries, i.e. to move from its current to the next higher cluster.