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The Role of ICT in Economic Development – A Partial Survey
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While it may be argued that estimating productivity in the service sector is difficult,
similar results were obtained from studies that investigated the effects of these technologies on
the manufacturing industry. One of the first studies to provide econometric evidence of the
impact of ICTs on manufacturing was a paper by Loveman (1994)
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. The author used data from
60 business units for the period from 1978 through 1982 to estimate a production function.
Loveman found that the contribution of IT capital to output was negligible for almost every sub-
sample and specification that he estimated.
Using a broader data set that covered the entire U.S. manufacturing sector during the
1968-1986 period, Morrison and Berndt (1990) estimated a series of production functions. Their
results indicated that the net marginal benefits of IT spending were –20 %, i.e. each dollar spent
on “high-tech” capital (computers, instruments and telecommunications equipment) increased
measured output by 80 cents. They concluded that “ ... there is a statistically significant negative
relationship between productivity growth and the high tech intensity of capital.”
Siegel and Griliches (1991) combined industry and firm data from multiple government
sources to examine possible biases in conventional productivity estimates. Using data from the
1980s, the authors find a positive correlation between an industry’s level of investment in
computers and MFP. The authors avoid a more structural approach due to problems regarding
the reliability and the consistency of the data.
The results of these studies fuelled the “productivity paradox”, i.e., despite the huge
investments in IT, increases in productivity were not forthcoming. In an attempt to understand
this puzzle, Brynjolfsson (1992) points out that the results of these papers should not be
overstated and that there are several possible explanations for this paradox. First, the data used
to estimate these relationships may not be accurate. It is difficult to measure outputs and inputs,
and these measurement problems may be particularly acute in the service sector. Conventional
statistics fail to take into account improvements in the quality of products or increases in the
variety of products which may have resulted from the increase in ICT use. Second, the positive
effects of IT on productivity may be experienced (only) after a time lag. The studies discussed
above were based on data and IT investments in the 1970s and 1980s.
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The working paper was written in 1988, and the paper appeared in a book in 1994.
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