Not Only Nokia

Has the spurt of IT-centered innovations of the 1990s resulted in sizably higher productivity growth? This question, first raised in the US and later on in Europe and the rest of the world, has not been given a firm answer yet. This paper adds to the evidence on Europe by looking at a seemingly ideal new economy laboratory, i.e. the sectors of Finland. We find three main results. First, Nokia was absolutely crucial in getting all started. Second, much the same as in the US, TFP productivity gains spilled over onto few other sectors and cyclical factors did play a role in boosting productivity in the second part of the 1990s. Third, nevertheless, the timing and the sector distribution of productivity gains are strongly and negatively related to the dynamics of the machinery and equipment sector price deflator. This is suggestive that productivity gains cannot simply be the side effect of fortunate cyclical circumstances.