Measurement issues in the digital economy

Digital technology and other drivers of structural economic change raise several significant measurement challenges. In this project we considered the implications for economic measurement arising from digital business models, including the trend towards servitisation; frequent incremental innovation and the concepts of ‘quality change’ versus consumer surplus; the globalisation of online businesses; and the value of data flows. Our work has helped to solidify ONS thinking on the ‘GDP versus welfare’ agenda and contributes to the international debate on three key measurement challenges: digitalisation, globalisation and well-being.

Digitalisation raises manifold conceptual challenges and practical issues for economic measurement. In this project we developed a taxonomy illustrating the scope of digital changes that raise measurement issues and explored the potential magnitudes of some of these for key statistics and economic concepts. We then made suggestions for steps that could be taken to better measure developments in the digital economy.

There were several strands to this research, all exploring the measurement challenges arising from the digital economy in different ways. For instance, digitally enabled substitutions in activity across the conventional GDP “production boundary” create issues of consistency over time. Rapid technological innovation in telecommunications makes it difficult to keep up to speed with price movements and quality change. And changes in business processes, both for services inputs like cloud computing, and for production models like factoryless production, make it harder to maintain measurement in conventional frameworks. We used a range of innovative data and perspectives to tackle these issues.

The project involved a range of topics, each involving different methods and data. Throughout we brought together different perspectives and fields of expertise.

Production boundary issues – we examined a range of evidence on the scale of substitutions in activity across the production boundary, although statistical agencies do not currently collect the data needed to measure this robustly. We also considered an alternative understanding of economic progress that combined an extended utility framework – considering time allocation over paid work, household work, leisure and consumption – with measures of objective or subjective well-being while engaging in different activities.

Quality adjusted deflators for telecommunications services and cloud-based IT services – this work was carried out with ONS colleagues and the Institution of Engineering and Technology. We considered two methodologically distinct options to estimate the potential bias in the current deflator, informed by both economic and engineering perspectives. For instance, we used data on the volume of bits and bytes transmitted as a volume indicator for telecoms services.

Cloud-based IT services – we constructed measures of nominal expenditure and quality-adjusted price indices for computing and storage products, using prices published online and price lists shared with us by Amazon Web Services, along with information on the number of floating-point operations per second by central processing unit core, which is a common proxy for the quality of a processor.

Factoryless manufacturing – We collated web-scraped evidence on the extent of factoryless manufacturing in the UK and explored this through company case studies based on systematic analysis of annual reports and websites.

This project has demonstrated the wide-ranging implications of the digital economy for economic measurement, for topics ranging from price measurement to the fundamental National Accounting principles themselves.

Selected findings include:

• Our research on telecommunications services prices indicated that the established deflator was upward biased and that telecommunications services prices may have fallen considerably more than it suggested. We developed an alternative.
• Our research on cloud-computing services showed that the market for cloud services is large and growing rapidly. We also found that quality-adjusted prices may have fallen by up to 5.5 per cent per quarter.
• Our research on contract manufacturing found that it is more prevalent amongst UK firms in the chemicals and pharmaceuticals sectors, whereas in the US it is more prevalent in electronics.
• Our work with the OECD brought together industry, economic and statistical experts to develop recommendations for measuring and collecting data on the value of new forms of data. This found many areas that are currently not reflected in the National Accounts or in international trade statistics, and plenty of scope for improvement.

Our work on the production boundary and cloud computing and on the measurement of price change in relation to telecommunications and cloud services has been presented at conferences at the OECD and the International Monetary Fund (IMF), impacting on the international debate as the UN steers towards a revision of the System of National Accounts.

Our work has also been presented and discussed at the World Economic Forum at Davos, the 2018 meeting of the G7 finance ministers, in UK government departments and at academic conferences. Our work on telecommunications deflators has provided options for consideration for implementation into the UK National Accounts and is also being considered by Statistics Canada and the US Bureau of Labor Statistics.

Coyle, D. & Nguyen, D. (2023), ‘Free Digital Products and Aggregate Economic Measurement’, Economie et Statistique / Economics and Statistics, 539, 27?50. doi: 10.24187/ecostat.2023.539.2096

Coyle, D. and Manley, A. (2023) ‘What is the value of data? A review of empirical methods‘, Journal of Economic Surveys, 18 August 2023, doi.org/10.1111/joes.12585

Coyle. D. ‘Productivity for a purpose’ Resolution Foundation & MMF webinar ‘Powering ahead: Raising our productivity game post-pandemic’ 26 May 2021

Coyle, D. ‘The Data Economy: more questions than answers’ Federal Reserve Banks of Atlanta, Dallas and Richmond, Technology-Enabled Disruption: Implications for Business, Labor Markets and Monetary Policy, 21 May 2021

Nguyen, D. and Paczos, M. (2020) “Measuring the economic value of data” VoxEU Columns, 06 October 2020.

Coyle, D. “The Impact of New Digital Goods and Variety on Economic Measurement” ESCoE Conference on Economic Measurement 2020 Special Session B: Digitalisation and Economic Measurement, 16-18 September 2020

Kellner, P. ‘Wednesday’s GDP figures will generate endless discussion. You can ignore all of it’ Prospect (UK), 10 September 2020

Nguyen, D. “How can we measure the economic value of data and data flows?” ESCoE Blog, 8 September 2020

Nguyen, D. and M. Paczos (2020), “Measuring the economic value of data and cross-border data flows: A business perspective“, OECD Digital Economy Papers, No. 297, OECD Publishing, Paris, https://doi.org/10.1787/6345995e-en

Coyle, D. and Nguyen, D. (2020) “No plant, no problem? Factoryless manufacturing, economic measurement and national manufacturing policies” Review of International Political Economy, 16 Jun 2020 https://doi.org/10.1080/09692290.2020.1778502

Coyle, D. and Nakamura, L. “Towards a Framework for Time Use, Welfare and Household-centric Economic Measurement” Sixth International Monetary Fund Statistical Forum, Washington DC, 19 November 2019

Nguyen, D. “How the increasing trend to rent factories is challenging economic measurement” ESCoE Blog, 13 September 2019

Coyle, D. and Nguyen, D. (2019) “No Plant, No Problem? Factoryless Manufacturing and Economic Measurement” ESCoE Discussion Paper Series, ESCoE DP 2019-15

Coyle, D., Nguyen, D. “Cloud Computing and National Accounting” presented at Society of Economic Measurement Annual Conference 2019, 16-18^th Aug 2019, Goethe University, Frankfurt

Nguyen, D. and Coyle, D. “Large-scale use of cloud services poses challenges to measurement in economics” LSE Business Review Blog, 5 September 2019

Nguyen, D. (2019)  ‘New general-purpose tech on the block: cloud computing services transform our economies while economic measurement struggles to keep up on cloud computing’  ESCoE Blog, 22 Aug 2019

Coyle, D. and Nguyen, D. (2019) “Cloud Computing, Cross-Border Data Flows and New Challenges for Measurement in Economics” National Institute Economic Review, Vol 249, Issue 1, 2019 Sage Journals https://doi.org/10.1177/002795011924900112

Coyle, D. and O’Connor, S. (2019) “Understanding the Sharing Economy” ESCoE Discussion Paper Series, ESCoE DP 2019-04

Coyle, D. “A time-based approach to measuring economic welfare” ESCoE Blog, 22 January 2019

Coyle, D. and Nakamura, L.I. (2019) “Towards a Framework for Time Use, Welfare and Household-centric Economic Measurement‘ ESCoE Discussion Paper, ESCoE DP 2019-01

Coyle, D. and Nguyen, D. “Cloud Computing and National Accounting” ESCoE Research Seminar, 16 October 2018

Coyle, D. and Nguyen, D. (2018) “Cloud Computing and National Accounting” ESCoE Discussion Paper Series, ESCoE DP 2018-19

Coyle, D.  (2018) “Do-it-yourself Digital: the Production Boundary, the Productivity Puzzle and Economic Welfare“, Economica, Volume 86, Issue 344, Wiley https://doi.org/10.1111/ecca.12289

Coyle, D. “Blurring the line: are digital technologies disrupting the measurement of GDP?” ESCoE Blog, 13 June 2017

Coyle, D. (2017) “Do-it-yourself Digital: the Production Boundary and the Productivity Puzzle” ESCoE Discussion Paper Series, ESCoE DP 2017-01