Data and Economic Growth: A Talk by Professors Merva, Stoian and Costagli

John Cabot University hosted an online roundtable on an academic article titled “Effective Information, Political Structure, and Economic Growth,” on April 14, 2021. The event was organized by the Department of Economics. The article,  authored by JCU Professors Mary Merva, Adrian Stoian, and Simona Costagli, will be published in Economics of Transition and Institutional Change, a peer reviewed journal that publishes articles about institutional determinants of economic outcomes and the dynamics of institutions. The discussion provided an overview of the importance of data and how it can drive economic growth.

by CyberHades

by CyberHades

Opening remarks
Professor of Economics Mary Merva started by illustrating the research: data has become a valuable resource for countries all around the world. However, simply collecting data does not imply economic growth. A country’s absorptive capacity (the ability to identify, assimilate, transform, and use the information in such things as artificial intelligence) is crucial when measuring how data can be used to drive growth. The paper rethought Austrian-British economist Friedrich Hayek’s (1899–1992) argument about relative efficiency of market versus state-planned economies applied to information technology. It develops a theoretical model to measure economic accumulation showing how the production of information by economic agents may be propagated by political structures that range from those that protect private ownership of information and individual privacy, to those that do not.

Following an empirical model, the paper concludes that effective information positively affects total factor productivity – with evidence of spillovers. Finally, the magnitude of the change in effective information is larger when information protection is reduced for economies whose high levels of information production and absorption place them close to the ‘information-technology frontier.’ The study shows that economies with high levels of absorption benefit more from spillover effects, which will ultimately have a positive impact on economic growth.

In her presentation Professor Merva illustrated the differences in data and privacy protection within countries, with a particular focus on the United States and China. In modern economies data play a role similar to that played by oil in the past: through confiscating information, governments could potentially generate economic growth. In particular, Professor Merva highlighted how countries with high absorptive capacity and close to the information-technology frontier have the highest percentage change in effective information when the data protection decreases. This implies that a “winner takes all” market may tempt policymakers in advanced economies to reduce information protection in the short term to increase effective information, which has in turn positive impact on total factor productivity. Countries with low information protection can only increase effective information by improving their information production and absorption. Professor Merva concluded by underlining that the paper is not advocating for a limitation of information protection but just to prove the importance of data and data management in fostering economic growth.

The role of A.I.
Associate Professor of Economics Adrian Stoian emphasized that one important role that prices have in a market economy is to aggregate information and that in the past, a market economy proved more suited than a planned economy for the job. However, with recent advancements in technology and A.I., aggregation of information is done increasingly outside the markets, either by big firms or by governments. The informational advantage of the market economy in the past century might be challenged in this one. Professor Stoian also argued that what a country can effectively do with data is becoming paramount for development and that the consequence of artificial intelligence might be an increase in the gap between the developed and the developing world.

Lecturer in Economics Simona Costagli underlined that economists often do not share a common definition of information. She also illustrated the importance of absorptive capacity, which she describes as not only the ability to use technology and data, but also acknowledging its existence. She also stressed the difficulty in estimating absorptive capacity and illustrated the different approaches adopted in the literature on this topic. Finally, she explained that the research findings are consistent with reality.

After concluding the discussion about the paper, the speakers proceeded to respond to questions about the implications of artificial intelligence and how data will shape the future of the global economy.