I:The importance of electronic commerce for economic activity

I. The importance of electronic commerce for economic activity

How significant might electronic commerce become in terms of overall economic activity, and which are the sectors in which the greatest impact is likely to be felt? We can assess the potential importance of Internet-based electronic commerce from different angles. We can analyse what share of value-added in an economy is likely to be directly or at least strongly affected by growing electronic commerce, and especially the Internet. A similar analysis is possible with respect to intermediate inputs and final demand. From this, we can obtain a crude picture of the overall effect of electronic commerce on the economy, and which sectors are going to be most strongly affected. It should be emphasized at the outset that an analysis of this nature rests on a number of assumptions and must be treated as partly speculative. The assumptions upon which the estimates reported below are based are summarized in the Methodological Annex.

Table 1 looks at the share in GDP of services sectors which are likely to be strongly affected by electronic commerce in a number of OECD countries. Communication services will probably be affected most strongly through the emergence of Internet telephony and other Internet services such as e-mail, video conferencing etc., as these complement or replace traditional mail or telecommunication services. Nevertheless, these services have a smaller impact on GDP than other services such as wholesale and retail trade and financial and business services, as we can see from Table 1. Wholesale and retail trade will be affected by both the Internet as a new medium of exchange and the use of the Internet to rationalize logistics and other overhead expenses in these sectors. E-commerce will impinge upon some of the functions of wholesalers and retailers by connecting producers and consumers directly. Thus, they are likely to adopt new distribution methods to avoid being bypassed as a result of the information technology revolution (for example providing web-portals and thus becoming "metamediaries"). Electronic commerce is also likely to transform the way many financial and business services are provided, including accounting, computing and advertising. On the other hand, some business services, such as doctors' visits, may not be much affected. Social and community services, including the provision of medical services and education will be affected to a degree, but probably not as much as a number of other sectors. Personal services such as household help, or government services such as primary education are unlikely to be much affected by electronic commerce whereas university education, tax collection etc. can move "online" to a greater degree.

Overall, Table 1 suggests that electronic commerce will affect a large share of economic activity. The share of value-added from the relevant service sectors amounts to 30 per cent of GDP on average, and exceeds a third of GDP in the United States, Spain and Australia. Distribution, finance and business services account for almost three quarters of this.

Another way of assessing the economic impact of electronic commerce is to look at countries' input-output tables. The input-output table for the United Kingdom, for example, indicates that 36 per cent of intermediate inputs come from sectors which are likely to be affected strongly by electronic commerce and the Internet (Appendix table 1). The share of intermediate inputs which might be provided electronically in the future is highest in service sectors, but is also above average in the pharmaceutical, telecom equipment and clothing industries. If we knew the sectoral production functions and the effect of electronic commerce on input prices, we could estimate the effects on sectoral and overall economic output and prices. In the absence of this, we can still hypothesize that electronic commerce and the Internet are likely to reduce prices and increase productivity in a number of services and even some manufacturing sectors. Since the share of inputs and output affected is large, we can also expect a strong positive overall effect on productivity and efficiency, as already hypothesized by other studies (for a survey, see Bacchetta, Low, Mattoo, Schuknecht, Wager and Wehrens, (1997)).

Finally, one can estimate the share of electronic commerce-related sectors in total final demand. Here, we approach the question of the economic importance of electronic commerce from the consumption side of GDP as opposed to the production side presented in Table 1. In the U.K., one quarter of final demand is in services sectors which are likely to be transformed by electronic commerce (see the last column of Appendix table 1). This number is almost identical to the percentage of value-added affected by electronic commerce as presented in Table 1. In other words, in the case of the U.K., estimations of the economic importance of electronic commerce yield very similar results from the consumption and production side.