How ICT Investment Influences Energy Demand in South Korea and Japan?

This empirical study examines productivity changes in Japan and South Korea during 1973–2006 and 1980–2009, respectively, in order to assess how investment in information and communications technology (ICT) affects energy demand. A dynamic factor demand model is applied to link inter-temporal production decisions by explicitly recognizing that the level of certain factors of production (refer to as quasi-fixed factors) cannot be changed without incurring so-called adjustment costs, defined in terms of forgone output from current production. This study quantifies how ICT capital investment in Korea and Japan affects economic growth in general and industrial energy demand in particular. We find that ICT and non-ICT capital investment serve as substitutes for the inputs of labor and energy use. The results also demonstrate a decreasing trend for labor productivity as well as significant cost differences across industries in both countries.