Telematics and Informatics 32 (2015) 7988

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Telematics and Informatics

journal homepage: www.elsevier.com/locate/tele

The effect of ICT development on economic growth and energy

consumption in Japan
Hazuki Ishida
Faculty of Economics, Doshisha University, Karasuma Higashi-iru, Imadegawa-dori, Kyoto City, Japan

a r t i c l e

i n f o

Article history:
Received 26 January 2014
Accepted 11 April 2014
Available online 23 April 2014
Keywords:
ICT
Energy demand
GDP
ARDL
Cointegration

a b s t r a c t
A strongly held belief in Japan is that information and communication technologies (ICT)
contribute to both a reduction in energy use and an increase in economic growth. As this
assertion is presently unproven, the purpose of this analysis is to estimate the long-run
relationship between ICT, energy consumption, and economic growth in Japan. Using an
autoregressive distributed lag (ARDL) bounds testing approach, we estimate two different
multivariate models corresponding to the production function and the energy demand
function, both including ICT investment as an explanatory variable, over the period
19802010. The results reveal the presence of a long-run stable relationship, not only
for the production function, but also for the energy demand function. However, in the
production function, the long-run coefcient estimate for ICT investment is statistically
insignicant, unlike the coefcients for labor, stock, and energy. In the case of the
energy demand function, the coefcients for GDP, energy price, and ICT investment are
statistically signicant. The results also indicate that the long-run ICT investment elasticity
of energy consumption is 0.155. On this basis, we conclude that while ICT investment
could ceteris paribus contribute to a moderate reduction in energy consumption, but not
to an increase in GDP.
2014 Elsevier Ltd. All rights reserved.

1. Introduction
From the end of World War II until the early 1970s, the average annual growth rate of energy consumption in Japan was
higher than the nations remarkable economic growth rate. However, following the 1973 oil crisis, the Japanese economy
was obliged to make some efforts to decrease its energy intensity (the ratio of energy consumption to GDP), and largely succeeded in slowing the growth rate of energy consumption without an accompanying decrease in GDP. Nonetheless, the fact
remains that energy consumption has continued to grow in the long term, with Japanese energy use rising by nearly 50%
from 1973 to 2010. In other words, the decrease in energy intensity has not revealed the concomitance of a reduction in
energy use and economic growth.
However, there is some hope that information and communication technologies (ICT) have the potential to solve the
dilemma of this winwin situation, that is, producing more output from less energy. For example, the Global Information
Infrastructure Commission (GIIC, 2008) emphasizes the role of ICT in protecting the environment without any sacrice in
economic output. Similarly, the Japanese government also relies strongly on ICT, not only to provide the economy with

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E-mail address: haishida@mail.doshisha.ac.jp
http://dx.doi.org/10.1016/j.tele.2014.04.003
0736-5853/ 2014 Elsevier Ltd. All rights reserved.

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H. Ishida / Telematics and Informatics 32 (2015) 7988

market competitiveness through technical innovation and global entrepreneurship, but also to enable transport, buildings,
and industry to reduce their energy consumption.
Currently, ICT investment represents about 25% of total investment in Japan, with software accounting for about 50% of
total ICT investment and equipment the remainder. ICT has also been one of the fastest growing components of total investment, having almost doubled over the last 15 years. Nevertheless, the average annual growth rate of ICT investment in Japan
is relatively low when compared with the US or many European Union countries. For this reason, the Japanese government
has emphasized the importance of introducing policies and institutions to stimulate additional investment in ICT. However,
on this point, there is insufcient evidence showing whether ICT investment can actually lead to a winwin lower energy
use-economic growth situation, and so it is inappropriate to suggest that ICT investment is an absolute good for society.
In the worst-case scenario, there is even the possibility of a deadweight loss stemming from excessively high ICT investment.
The aim of this paper is to explore the nexuses between ICTGDP and ICTenergy using an autoregressive distributed lag
(ARDL) bounds test approach. Considering the problems associated with the use of a bivariate model pointed out by Stern
(1993), Stern (2000), we employ a multivariate approach in our analysis. For the ICT-growth nexus, we specify a neoclassical
aggregate production function including energy consumption and ICT investment as explanatory variables. For the ICT
energy nexus, we develop a conventional energy demand function, also including ICT investment as an explanatory variable.
The remainder of the paper is organized as follows. Section 2 reviews the literature on related studies. Section 3 describes
the methods and data used in this analysis. Section 4 reports the results of the respective econometric analyses. In Section 5,
we discuss the empirical results and Section 6 concludes.

2. A brief literature review

2.1. ICT and economic growth
Studies on the relationship between ICT development and economic growth began in the 1960s, and have since been conducted mainly in the US. Although these results have generally found a positive correlation between ICT and economic
growth (Jipp, 1963; Gilling, 1975; Hardy, 1980; Saunders et al., 1983), for the most part these studies have been based on
static data. They therefore say nothing about the long-run equilibrium among the various variables included. In other words,
these studies do not provide sufcient information about the actual contribution of ICT development to economic growth.
Since the seminal work by Engle and Granger (1987), cointegration analysis has become a widely used technique for
investigating long-run association among the time-series variables. Studies on the ICTgrowth nexus using time-series analysis rst began in the 1990s. For example, Cronin et al. (1991); Cronin et al. (1993) investigated the causal relationship
between ICT development and economic growth and nd evidence of a bidirectional relationship in the US. Subsequently,
there have been many similar studies in both developed and developing countries. While most of these have conrmed
the existence of a causal relationship running from ICT to growth (Madden and Savage, 1998; Dutta, 2001; Chakraborty
and Nandi, 2003; Chu et al., 2005), there are a few cases where there is no evidence of causality from ICT to GDP (Shiu
and Lam, 2008).
It is natural that empirical results sometimes diverge because of the different methodologies employed, the use of different countries over dissimilar periods, and so on. One important problem is to select a variable to represent the level of ICT
development, for which there are two main ways: nonmonetary and monetary. As a nonmonetary variable, teledensity (the
number of xed telephones per hundred inhabitants, if available, including mobile phone subscribers and internet broadband subscribers) is usually used to investigate the ICTgrowth nexus. Alternatively, in the monetary approach, either ICT
investment or ICT stock is typically used. Importantly, while data on teledensity are usually easy to obtain, one disadvantage
of using such data is that they do not reect the investment in software that has become so important in developed countries. Therefore, when investigating the effect of ICT development on economic growth in a developed country, such as Japan,
it is preferable to employ monetary measures to represent ICT development. Until now, Shinjo and Zhang (2004) is the only
study that has conducted time-series analysis to investigate the relationship between ICT development, as measured in monetary terms, and GDP in Japan, for which they found a unidirectional causality running from GDP to ICT investment, implying
the rejection of the ICT-led growth hypothesis.
Other than the problem of measuring ICT development discussed earlier, previous studies leave much room for improvement in the methods used. First, most existing studies of the ICTgrowth nexus employ bivariate analysis, that is, only two
variables (ICT and GDP) are specied in the estimations. However, the bivariate approach is subject to some criticism as it
effectively ignores any bias arising from omitted variables, which could be potentially substitutable for each other (Stern,
1993; Stern, 2000; Zachariadis, 2007; Gross, 2012). In the case of the ICTgrowth nexus, the bivariate approach may also lead
to erroneous conclusions given it ignores the substitution effects between ICT and other factors of production (e.g., capital,
labor, energy).
Second, there is no precedent for studying the ICTgrowth nexus using an ARDL model. Developed by Pesaran and Shin
(1999), Pesaran et al. (2001), the ARDL bounds cointegration approach has been used extensively in recent years to examine
the existence of long-run relationships among time series variables. One of the reasons for preferring this approach is that it is
more robust and performs better with small sample sizes than many other techniques. Note especially that even a developed
country such as Japan does not have a long series of data on ICT investment or stock when measured in monetary terms.

H. Ishida / Telematics and Informatics 32 (2015) 7988

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2.2. ICT and energy consumption

Several reasons exist to explain how ICT development can lead to a signicant reduction in energy consumption. To start
with, Toffel and Horvath (2004) emphasize the potential energy savings accruing from reading newspapers and decreasing
the need for business travel through the use of wireless information technologies. However, these are just some of the examples. For instance, it is widely acknowledged that ICT contributes to dematerialization in broad industrial sectors through
the substitution and optimization of material or energy consumption (Hilty, 2008). Moreover, Barratt (2006) argues that education and training about environmental management and technology can be achieved through distance teaching via the
Internet.
While there certainly could be substitution and optimization effects of ICT with energy use, some researchers are skeptical about the idea that ICT development automatically leads to a substantial reduction in energy usage, mainly because of
concerns about the negative side effects of ICT development (Rejeski, 2002; Cho et al., 2007; Yi and Thomas, 2006; Fuchs,
2008; Bomhof et al., 2013; Chiabai et al., 2010; Hilty and Ruddy, 2010). As Hilty (2008) argues, ICT development could affect
energy use in the economy via two channels: direct and indirect impacts. The direct impact relates to the production, use and
disposal of ICT equipment. The magnitude of these direct impacts remains controversial. For example, Huber and Mills
(1999) estimate that the energy requirements for computer, ofce equipment, and the Internet range from 8% to 13% of total
US electricity consumption, while Forge (2007) points out the unsustainability of ICT development, e.g. power consumption
in data centers. Conversely, Roth et al. (2002) suggest that ofce and communication equipment in the US consume less than
3% of delivered electricity nationwide. Accordingly, and as Laitner (2002) points out, complexity in the relationship between
ICT development and economic activity leads to deep uncertainty about the direct impact of ICT development on energy
consumption.
The estimation of the indirect impact of ICT on energy consumption is even more complicated. To start with, there is the
possibility that ICT development in fact stimulates the demand for energy through the globalization of markets and the distribution of production forms induced by the growth of telecommunications networks (referred to as the induction effect
by Hilty (2008)). After all, the impact of ICT on energy use as a whole hinges on whether these negative (direct and indirect)
effects offset the associated substitution and optimization effects.
Compared with studies of the ICTgrowth nexus, macro-level empirical investigation of the relationship between ICT
development and energy consumption is less common, seemingly in spite of its environmental importance. Takase and
Murota (2004) conducted one of the few studies on this subject. They analyze the effects of ICT investment on energy consumption in the US and Japan, and conclude that while Japan could conserve energy by increasing investment in ICT, increasing ICT investment in the US would increase energy use. Elsewhere, Cho et al. (2007) investigate the effects of ICT investment
on electricity consumption in South Korean industries and conclude that ICT investment in some manufacturing sectors
brings about a reduction in electricity consumption, whereas ICT investment in the service sector and most manufacturing
sectors increases electricity consumption. Similarly, Sadorsky (2012) examines the impact of ICT on electricity consumption
in 19 emerging countries, and nds a positive relationship between ICT (as measured by teledensity) and electricity consumption. Although the results of these studies imply that the negative effects of ICT investment on energy consumption
offset the positive effects (if any), we should note that Cho et al. (2007) and Sadorsky (2012) investigated the relationship
between ICT and electricity consumption, not total energy (including electricity) consumption. In addition, no studies using
time-series techniques have examined the long-run relationships between ICT and energy.

3. Methods and data

3.1. Production model
Although conventional neoclassical production models consider labor and capital stock as the only inputs, energy economists (Stern, 2000; Ghali and El-Sakka, 2004) have increasingly emphasized the crucial role of energy as a production factor.
In fact, many recent studies have incorporated energy as a factor additional to labor and capital stock in the production function (Stern, 2000; Soytas and Sari, 2003; Ghali and El-Sakka, 2004; Oh and Lee, 2004; Szklo and Schaeffer, 2007; Yuan et al.,
2008; Wang et al., 2011). After considering the importance of energy as a factor of production, we develop an aggregate production model where not only labor and the capital stock but also energy are treated as production factors. Assuming that
ICT investment also affects output, the production function is dened as follows:

Y f L; K; E; Z

where Y is real GDP, K is the capital stock, L is the labor input, E is the energy input, and Z is ICT investment. Taking the loglinear form of Eq. (1), we obtain the following equation:

ln Y a0 a1 ln L a2 ln K a3 ln E a4 ln Z

where the coefcients ai ; i 1; 2; 3; 4 correspond to the elasticity of GDP with respect to labor, the capital stock, energy
consumption, and ICT investment, respectively.

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3.2. Energy demand model

It is customary to model energy demand as a function of income and the energy price. In addition to this, we assume that
ICT investment also inuences energy demand, and dene the aggregate energy demand model as follows:

E gP; Y; Z

where P is the energy price. Taking the log-linear form of Eq. (3), we obtain:

ln E b0 b1 ln P b2 ln Y b3 ln Z

where the coefcients bi ; i 1; 2; 3 refer to the elasticity of energy consumption with respect to the energy price, GDP and
ICT investment.
3.3. Stationary test
Given that the conventional augmented DickeyFuller (ADF) test has low power with a short span of data, we apply the
DickeyFuller generalized least squares (DF-GLS) unit root test (Elliott et al., 1996) and the KPSS (Kwiatowski et al., 1992)
test to conrm the stationarity of the variables. As the ARDL bounds test for cointegration is applicable regardless of whether
the variables are I0 or I1, the stationary tests are only to ensure that there are no I2 variables.
3.4. ARDL bounds cointegration test
We employ the ARDL bounds testing approach (Pesaran and Shin, 1999; Pesaran et al., 2001) to examine the long-run
equilibrium relationships between the variables. We estimate the models developed above using the unrestricted error correction model (UECM) approach, where we indirectly estimate the long-run relationship and directly estimate the short-run
equilibrium. The UECM representation corresponding to Eq. (1) is:

D ln Y t k0

q1
X

k1i D ln Y ti

i1

q5
X

q2
q3
q4
X
X
X
k2i D ln Lti
k3i D ln K ti
k4i D ln Eti
i0

i0

i0

k5i D ln Z ti l1 ln Y t1 l2 ln Lt1 l3 ln K t1 l4 ln Et1 l5 ln Z t1 et

i0

where D is the rst-difference operator, the subscript t denotes the time period, and et is a disturbance term assumed normally distributed white noise. The UECM representation corresponding to Eq. (3) is:

D ln Et c0

q1
X

c1i D ln Eti

i1

h4 ln Z t1 et :

q2
X

q3
X

q4
X

i0

i0

i0

c2i D ln Y ti

c3i D ln P ti

c4i D ln Z ti h1 ln Et1 h2 ln Y t1 h3 ln Pt1

6

The null hypothesis of no cointegration between the variables in Eq. (5) is H0 : l1 l2 l3 l4 l5 0, against
H1 : l1 l2 l3 l4 l5 0, which is denoted as FYjL; K; E; Z. Similarly for Eq. (6), H0 : h1 h2 h3 h4 0, against
H1 : h1 h2 h3 h4 0, which is denoted as FEjY; P; Z.
An F-test with a nonstandard asymptotic distribution is used to test the null hypothesis. To conduct the F-test, we use the
two sets of critical F-values provided by Narayan (2005) as our sample size is only 30. The rst set of critical values refers to
the lower-bound critical values, and the second set of critical values comprises the upper-bound critical values. If the calculated F-statistic exceeds the upper-bound critical value, then the null hypothesis is rejected, inferring that a cointegrating
relationship exists between the variables. If the calculated F-statistic is lower than the lower-bound critical value, then
the null hypothesis cannot be rejected, meaning there is no evidence of cointegration between the variables. If the calculated
F-statistic falls within the critical band between the upper and lower bound, then the result is inconclusive. In such an inconclusive case, applying ECM version of ARDL model will be a useful way of establishing cointegration (Kremers et al., 1992;
Bahmani-Oskooee and Nasir, 2004).
3.5. Data
We employ annual data for Japan over the period 1980 to 2010. The data for real GDP data and the capital stock are from
the Cabinet Ofce, Government of Japan. The data for total labor hours, calculated by multiplying the number of workers and
working time per capita, are from the Ministry of Internal Affairs and Communications and the Ministry of Health, Labor and
Welfare, respectively. The data for total domestic primary energy consumption in joules are from the Agency for Natural
Resources and Energy. Considering that fossil fuels (oil, coal and natural gas) are major sources of the energy supply in Japan,
we specify the price of fossil fuels as the energy price, being a quantity-weighted average of the imported prices (given Japan
imports almost all its fossil-fuel needs) of oil, coal and natural gas. We obtain the data for the prices of imported fossil fuels

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H. Ishida / Telematics and Informatics 32 (2015) 7988

Table 1
Results of the DF-GLS and KPSS tests.
Variables

DF-GLS

ln E
ln Y
ln P
ln L
ln K
ln Z
Dln E
Dln Y
Dln P
Dln L
Dln K
Dln Z

KPSS

Constant and trend

Constant, no trend

Constant and trend

Constant, no trend

1.620(1)
1.434(1)
1.166(0)
1.881(2)
1.967(1)
1.402(1)
3.697(0)
3.883(0)
3.579(3)
5.173(1)
3.271(3)
3.899(0)

0.868(1)
0.360(1)
1.211(0)
1.331(2)
1.271(1)
0.462(1)
3.376(0)
2.806(0)
4.565(0)
4.457(1)
2.164(0)
2.730(0)

0.183
0.184
0.176
0.168
0.160
0.179
0.122
0.072
0.126
0.127
0.088
0.089

0.612
0.657
0.455
0.187
0.427
0.654
0.318
0.390
0.392
0.286
0.352
0.445

Lag lengths (in parenthesis) are determined by AIC.

, Indicate signicance at 5% and 1% level respectively.

Table 2
Bounds F-test for cointegration for the production model.
Model
F
F
F
F
F

(YL, K, E,
(LY, K, E,
(KY, L, E,
(EY, L, K,
(ZY, L, K,

Z)
Z)
Z)
Z)
E)

F-statistics

Cointegration

4.547
4.119
5.958
8.217
3.783

Inconclusive
No
Yes
Yes
No

5% Critical value bounds: I (0) = 4.154, I (1) = 5.540.

Critical value bounds are obtained from Narayan (2005).

from the Institute of Energy Economics, Japan, and calculate the real price using the GDP deator. The data for ICT investment in real terms are from the Ministry of Internal Affairs and Communications. 1
4. Empirical results
Table 1 provides the results of the DF-GLS and KPSS tests. The null hypothesis of the DF-GLS test states that the series in
question has a unit root, whereas the null hypothesis of the KPSS test is that the variable is stationary. As shown, the DF-GLS
test results indicate that all variables are nonstationary in levels, but stationary in rst-differences. The results for the KPSS
test show that all of the variables are nonstationary in levels except for labor (with constant and no trend) and the capital
stock (with constant and no trend). However, with the rst-differences, the KPSS test reveals that all of the variables are stationary. In particular, the results of the two tests conrm that all variables in question are either I0 or I1, namely, not I2.
Table 2 details the results of the ARDL bounds test for the ve-variable model (corresponding to the production model).
The results in Table 2 indicate that the calculated F-value for the equation with real GDP as the dependent variable falls
between the lower and upper bounds of critical values at the 5% level of signicance. Since the result of the cointegration
test is inconclusive, following Kremers et al., 1992, we check the coefcient of the ECM term to determine the long-run relationship among the variables (see Table 4).
Additionally, the calculated F-values for the remaining two equations specifying the capital stock and energy consumption as dependent variables are also higher than the upper-bound critical value at the 5% signicance level. These results
indicate cointegration among the variables. In contrast, the results show that there is no cointegration when labor and
ICT investment serve as dependent variables.
Table 3 provides the results of the ARDL bounds test for the four-variable model (corresponding to the energy demand
model). The results conrm that cointegration is only present when energy consumption is the dependent variable, signifying a long-run energy demand function. Meanwhile, the bounds test indicates that there is no cointegration when real GDP,
the energy price, and ICT investment are the dependent variables.
Next, we proceed to estimate the long- and short-run coefcients of both the production function and the energy demand
function in the long run based on the associated ARDL model and ECM framework. We estimate the ARDL model using the
1
If we consider the consistency of the variables used in the neoclassical production model, it might be more appropriate to use the stock of ICT rather than
ICT investment. However, we use ICT investment for the following reasons. First, the stationarity tests indicate that ICT stock is I2. Second, existing studies
(especially concerning Japan) display a strong tendency to use ICT investment in analyzing the relationship between ICT development and economic growth
and/or energy consumption. The use of ICT investment thus enables us to better compare our results with those of other researchers.

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H. Ishida / Telematics and Informatics 32 (2015) 7988

Table 3
Bounds F-test for cointegration for the energy demand model.
Model
F
F
F
F

(EY,
(YE,
(PY,
(ZY,

P,
P,
E,
E,

Z)
Z)
Z)
P)

F-statistics

Cointegration

8.671
1.716
1.870
3.500

Yes
No
No
No

5% Critical value bounds: I (0) = 4.683, I (1) = 5.980.

Critical value bounds are obtained from Narayan (2005).

Table 4
Estimated long-run and short-run coefcients of the production function based on ARDL (1,0,0,1,0) model.
Variable

Coefcient

Standard error

T-statistics

Dependent variable: ln Y
Long-run results
ln L
ln K
ln E
ln Z

1.349
0.138
0.345
0.013

0.434
0.067
0.096
0.043

3.112[0.005]
2.043[0.053]
3.592[0.002]
0.294[0.771]

Short-run results
Dln L
Dln K
Dln E
Dln Z
ECT (1)

0.597
0.061
0.309
0.006
0.442

0.135
0.034
0.089
0.018
0.096

4.415[0.000]
1.781[0.088]
3.453[0.002]
0.301[0.766]
4.558[0.000]

R-bar-square
F-statistic
DW
RSS
Serial correlation (v-square)
RESET (v-square)
Normality (v-square)
Heteroscedasticity (v-square)

0.998
1751.2[0.000]
2.097
0.002
0.081[0.776]
1.717[0.190]
0.449[0.799]
1.419[0.233]

The optimal order of lags in the model are selected based on AIC.
Bracket represents probability values.

Table 5
Estimated long-run and short-run coefcients of the energy demand function based on ARDL (1,1,1,0) model.
Variable

Coefcient

Standard error

T-statistics

Dependent variable: ln E
Long-run results
ln Y
ln P
ln Z

1.075
0.098
0.155

0.336
0.029
0.075

3.204[0.004]
3.287[0.004]
2.061[0.052]

Short-run results
Dln Y
Dln P
Dln Z
ECT (1)

0.845
0.006
0.057
0.369

0.214
0.016
0.027
0.106

3.956[0.001]
0.369[0.715]
2.096[0.047]
3.489[0.002]

R-bar-square
F-statistic
DW
RSS
Serial correlation (v-square)
RESET (v-square)
Normality (v-square)
Heteroscedasticity (v-square)

0.989
371.7[0.000]
2.196
0.004
2.244[0.134]
2.540[0.111]
1.706[0.426]
2.862[0.091]

The optimal order of lags in the model are selected based on AIC.
Bracket represents probability values.

H. Ishida / Telematics and Informatics 32 (2015) 7988

85

Fig. 1. Plot of CUSUM and CUSUMSQ for the production function.

Akaike information criterion (AIC) to select the optimum lag order. Table 4 details the results for the production model. As
shown, the long-run elasticities of labor and energy consumption on real GDP are positive and statistically signicant at the
1% level. The long-run elasticity of capital stock on real GDP is also positive and statistically signicant at nearly the 5% level.
However, the long-run elasticity of ICT investment on real GDP is statistically insignicant, even at the 10% level. The shortrun elasticity of ICT investment on real GDP as estimated by the error correction representation of the ARDL model is also
statistically insignicant at the 10% level. Together, these results indicate that ICT investment does not have a positive effect
on economic growth in either the long or short run. As expected, the lagged error correction term in the production model is
negative and statistically signicant, supporting cointegration among the variables (Bahmani-Oskooee and Nasir, 2004). The
estimated coefcient of 0:442 suggests that the convergence to equilibrium following a shock to real GDP takes a little over
two years.
Table 5 provides the results for the long- and short-run estimation of the energy demand model. In line with theory, the
long-run income elasticity of energy demand is positive, and the long-run price elasticity of energy demand is negative. Both
are signicant at the 1% level. More importantly, the long-run impact of ICT investment on energy demand is negative and
almost statistically signicant (p-value = 0.052). The estimated value of the coefcient is 0:155, indicating that a 1%
increase in ICT investment results in a 0:155% decrease in energy demand. Moreover, the short-run elasticity of ICT investment on energy demand is also statistically signicant at the 5% level. Lastly, the lagged error correction term in the energy
demand model is negative and statistically signicant at the 1% level. The coefcient of 0:369 suggests that the convergence to equilibrium following a shock in energy demand takes place within three years.

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H. Ishida / Telematics and Informatics 32 (2015) 7988

Fig. 2. Plot of CUSUM and CUSUMSQ for the energy demand function.

As shown in Table 4 and Table 5, both of the estimated ARDL models (the production model and the energy demand
model) pass the tests for serial correlation, functional form misspecication, nonnormality, and heteroscedasticity. In addition, we test for the stability of the coefcients in the estimated models by using the cumulative sum (CUSUM) and the
cumulative sum of squares (CUSUMSQ) stability tests. Fig. 1 and Fig. 2 depict the plots for the stability tests for the production model and the energy demand model, respectively. As shown, the estimated parameters for both models appear stable
throughout our chosen sample period.

5. Discussion
One of the focuses of this paper is the impact of ICT development on energy demand in Japan. The empirical results conrm that aggregate energy demand in the long run is determined not only by the energy price and real GDP, but also by ICT
investment. The negative elasticity of ICT development in the energy demand function implies that a ceteris paribus increase
in ICT development will lower energy intensity (as measured by the ratio of energy consumption to GDP).
Needless to say, energy intensity can be lowered through either the same output with less energy or more output with
the same energy. Another of our focuses relates to the latter. Although we nd the impact of ICT investment on real GDP is
not statistically signicant, we note that our ndings do not preclude the possibility of more output with the same energy.
Strictly speaking, the results of our empirical analysis based on the production model indicate that a ceteris paribus increase
in ICT development will not affect economic growth. In other words, more output with the same energy can be achieved if
the input of labor and/or capital stock increase, even without a corresponding increase in energy consumption. These results

H. Ishida / Telematics and Informatics 32 (2015) 7988

87

imply that the role of ICT development on economic growth should not be overestimated. Thus, if we hope to achieve economic growth without an increase in energy consumption, an increase in labor and/or capital stock must accompany developments in ICT.
This role for ICT may then be analogous to, for example, the improvement of fuel efciency in vehicles used for taxi services. Suppose that the fuel efciency of a taxicab doubles. The owner (driver) of the cab could then produce the same
amount of service with half the amount of fuel, or twice as much service (that is, mileage) with the same input of fuel, as
before. However, it is clear that a doubling of the working hours for the driver must accompany the latter. This suggests that
a technology used to improve energy productivity will not necessarily facilitate growth in labor productivity.
Again, our ndings imply that energy could substitute for labor and/or capital (at least to some extent), but not for ICT
investment. Considering the capital stock originates from past output, the results of our analysis imply that long-term economic growth would not be achieved without a continuous increase in either labor or energy consumption. If we avoid the
increase in energy consumption, the pursuit of economic growth would necessitate (more or less) an increase in the labor
force. Although this could contribute to a decrease in the rate of unemployment, it could also lead to an increase in working
hours per capita. Given that the average Japanese worker works longer than average among the OECD countries, the Japanese
government should take deliberate steps to implement a growth-oriented policy.
Conversely, our result that ICT development does not directly affect economic growth also suggests that the rebound
effect, dened as the percentage change in real GDP for a given percentage change in energy intensity, for ICT investment
may not be too serious. If the magnitude of the rebound effect is small, the direct impact and the induction effect may
not be sufciently serious to offset the anticipated energy savings from the decrease in energy intensity associated with
stimulating ICT development. This result is consistent with the ndings in Takase and Murota (2004) concerning the relationship between energy consumption and ICT investment in Japan.
6. Conclusions
This study estimates the impact of ICT investment on economic growth and energy consumption in Japan using annual
time-series data over the period 1980 to 2010. To do this, we develop two different multivariate models, comprising a vevariable model corresponding to the production model, and a four-variable model corresponding to the energy demand
model, both of which incorporate ICT investment as one of their explanatory variables. The results of the ARDL bounds testing approach to cointegration reveal stable long-run production and energy demand functions.
In the energy demand function, we nd the long-run coefcient for ICT investment to be almost statistically signicant at
the 5% level, thereby indicating that ICT investment growth is negatively related to energy consumption, though the impact
is small. The price and income elasticity of energy demand are statistically signicant with the correct theoretically expected
signs. The short-run impact of ICT investment on energy demand is also statistically signicant. In the production function,
however, both the long- and short-run impact of ICT investment on real GDP is not statistically signicant, with the production function explained by labor, the capital stock, and energy consumption, but not ICT investment.
Overall, we conclude that ICT investment directly contributes to a moderate reduction in energy consumption, but not to
an increase in GDP. The Japanese government should then not overestimate the potential of ICT development to realize sustainable growth with lower energy consumption. Adopting the policy instruments to promote heavily ICT development
might create a deadweight loss onto the Japanese economy.
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