TAILIEUCHUNG - The Economic Impact of Cloud Computing on Business Creation, Employment and Output in Europe

Our analysis will emphasize a mechanism of propagation of the effects of cloud computing which depends on the endogenous market structures. Through business creation, the adoption of cloud computing is going to enhance competition in each sector and to increase production and lower mark ups. This will have a positive im- pact on consumption so as to contribute to the recovery of the EU economy. Most of all, part of these effects are going to be positively related to the speed of adop- tion of the new technology. Our results are only preliminary and future research should try to improve the calibration of a theoretical model or. | The Economic Impact of Cloud Computing on Business Creation Employment and Output in Europe An application of the Endogenous Market Structures Approach to a GPT innovation Federico Etro1 ABSTRACT Cloud computing is a new general purpose Internet-based technology through which information is stored in servers and provided as a service and on-demand to clients. Adopting the endogenous market structures approach to macroeconomics we analyze the economic impact of the gradual introduction of cloud computing and we emphasize its role in fostering business creation and competition thanks to the reduction of the fixed costs of entry in ICT capital. Our calculations based on a DSGE model show a significative impact for the European Union with the creation of a few hundred thousands new SMEs and a significant contribution to growth. Governments could enhance these benefits by subsidizing the adoption of cloud computing solutions. JELCODES L11 E32. KEYWORDS Endogenous market structure Cloud computing Utility computing General purpose technology Firms Entry Business Cycle I. Introduction The introduction of a general purpose technology can provide a fundamental contribution to promote growth and competition 2 and it can help the economy to recover from a severe downturn as the current one. In this article we employ the endogenous market structures approach Etro 2004 2007a 3 to study the economic impact of an innovation in the hardware-software field which is going to have a profound effect on the market structure of many sectors and on the global macroeconomic performance in the next years. This innovation is associated with cloud computing the new frontier of the Internet era a technology through which information will be stored in servers and provided on line as a service to clients in a pay-as-you-go manner. Firms will be able to adopt this service on demand so as to 2009 2 Review of Business and Economics 180 Federico Etro Review of Business and Economics 2009 2 avoid .

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