Information Technology and Productivity: Evidence from Country-Level Data

• Published in: Management science Vol. 46; no. 4; pp. 548 - 562
• Main Authors: Dewan, Sanjeev, Kraemer, Kenneth L
• Format: Journal Article
• Language: English
• Published: Hanover, MD., etc INFORMS 01-04-2000; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: capital investment; Capital investments; Capital stocks; Developed countries; Developing countries; Economics; Financial investments; Gross domestic product; Information technology; information technology investment; International; LDCs; Production functions; Productivity; productivity paradox; Return on investment; Statistical analysis
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.46.4.548.12057

This paper studies a key driver of the demand for the products and services of the global IT industry—returns from IT investments. We estimate an intercountry production function relating IT and non-IT inputs to GDP output, on panel data from 36 countries over the 1985–1993 period. We find significant differences between developed and developing countries with respect to their structure of returns from capital investments. For the developed countries in the sample, returns from IT capital investments are estimated to be positive and significant, while returns from non-IT capital investments are not commensurate with relative factor shares. The situation is reversed for the developing countries subsample, where returns from non-IT capital are quite substantial, but those from IT capital investments are not statistically significant. We estimate output growth contributions of IT and non-IT capital and discuss the contrasting policy implications for capital investment by developed and developing economies.