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The Role of ICT in Economic Development – A Partial Survey
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is around 6-7 percent, and the returns on non-IS/computer labor, which are around $ 1.07.
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These results indicate clearly that the effects of IT are positive and quite substantial. To
determine whether the net benefits, i.e., those remaining after costs have been subtracted, are
positive, the authors assume that the average service life of a computer is three years, thus
yielding a net return of 48 percent (81 – 33) on computer investments. For IS staff, the net
marginal product is $1.62 (2.62 – 1). These positive estimates of the net marginal product
suggest that further investments in computing technology and in IS staff may be warranted.
The pronounced differences between the results obtained by Brynjolfsson and Hitt (1996)
and those obtained by other authors (as discussed above) are remarkable. The authors explain
these differences by appealing to their use of detailed firm data and particularly the time period
covered by their sample. They suggest that their more recent data incorporates learning effects
and changes in business processes that have been instituted in response to the advent of
computers. On the basis of their results, the authors conclude that the productivity paradox has
disappeared. While it appears a bit premature (on the basis of one paper) to conclude that the
puzzle has been resolved, the results of this paper do suggest that more work using higher quality
and more recent data may resolve the puzzle.
Some evidence on the link between ICT adoption and firm productivity in developing
countries is provided by Lal (1996), who uses data from 59 small and medium-sized
manufacturing firms in the electronics/electrical goods industry in northern India to examine the
relationship between IT adoption and firm conduct and firm performance. Firm conduct is
captured through the skill intensity of the work force, quality consciousness, international
orientation and the importance of R & D. Firm performance indicators are profit margins,
turnover, exports, labor productivity and wages. On the basis of a discriminant analysis,
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Lal
reports that firms using IT employ a more highly skilled work force, assign greater importance to
product quality, invest more in R & D activities and are more export-oriented. However, there
appears to be no link between IT use and firm wages or labor productivity. The finding that
firms which employ more highly skilled workers are the first to adopt IT, despite there being no
difference in labor productivity between IT-using and non-IT-using firms, is similar to findings
yielded by work done in the US manufacturing sector (Doms
et al.,
1997).
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The marginal product of an input is calculated by multiplying the output elasticity of the input by the output-input
ratio. For example, in the case of computer capital
E
C
=
β
1
, the marginal product for computers is
MP
C
=
δ
Q/
δ
C =
(
δ
Q/
δ
C.C/Q)Q/C = E
C
.Q/C.
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Discriminant analysis is a method of distinguishing between groups (here, firms that use IT and those that don’t)
on the basis of their observed characteristics. Roughly, the analysis distinguishes groups such that variance of the
discriminating variables is minimised within the groups, while variance is maximized between the groups. Lal
prefers this method of analysis as it entails no causal implications.
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