The Information Technology Productivity Paradox

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The Information Technology Productivity Paradox

Author Info

Mehmet Yorukoglu (Department of Economics, University of Chicago)

Abstract

A vintage capital model where the firm makes decisions about whether to replace or upgrade its old capital stock with new capital is developed in this paper. The model is used to study how technological characteristics of capital affect investment behavior. In particular, it is asked how the rate of technological advance, the compatibility between capital stocks of different vintages, and the extent of learning-by-doing affect investment behavior. The model sheds light on the "information technology productivity paradox." The results suggest that the paradox may just be an artifact of the estimation procedures used, which ignore the vintage features of capital. Finally, the key implications of the model are tested using firm-level data. The data support the implications of the model that information technology (IT) capital is associated with a strong learning-by-doing effect and that IT capital investment is lumpier than other kinds of capital investment. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 2 (April)
Pages: 551-592
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Handle: RePEc:red:issued:v:1:y:1998:i:2:p:551-592

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Find related papers by JEL classification:
E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
L6 - Industrial Organization - - Industry Studies: Manufacturing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August. [Downloadable!] (restricted)
Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
Other versions:
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
Frank R. Lichtenberg, 1996. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Erik J. Brynjolfsson & Thomas Malone & Vijay Gurbaxani & Ajit Kambil, 1991. "Does Information Technology Lead to Smaller Firms?," Working Paper Series 123, MIT Center for Coordination Science. [Downloadable!]
Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December. [Downloadable!] (restricted)
Other versions:
- Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994. "The Replacement Problem," Working Papers 9408, Centro de Investigacion Economica, ITAM.
- Cooley, T.F. & Greenwood, J. & Yorukoglu, M., 1995. "The Replacement Problem," UWO Department of Economics Working Papers 9508, University of Western Ontario, Department of Economics.
- Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994. "The replacement problem," Discussion Paper / Institute for Empirical Macroeconomics 95, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Cooley, T.F. & Greenwood, J. & Yorukoglu, M., 1997. "The Replacement Problem," RCER Working Papers 444, University of Rochester - Center for Economic Research (RCER).

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Jeffrey Campbell, 1998. "Entry, Exit, Embodied Technology, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 371-408, April. [Downloadable!] (restricted)
Other versions:
- Jeffrey R. Campbell, 1997. "Computational Appendix to Entry, Exit, Embodied Technology, and Business Cycles," Technical Appendices campbell98, Review of Economic Dynamics. [Downloadable!]
- Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Boyan Jovanovic & Dmitriy Stolyarov, 2000. "Optimal Adoption of Complementary Technologies," American Economic Review, American Economic Association, vol. 90(1), pages 15-29, March. [Downloadable!] (restricted)
Other versions:
- Jovanovic, Boyan & Stolyarov, Dmitriy, 1997. "Optimal Adoption of Complementary Technologies," Working Papers 97-27, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
Georg Duernecker, 2008. "Technology Adoption, Turbulence and the Dynamics of Unemployment," Economics Working Papers ECO2008/10, European University Institute. [Downloadable!]
Boyan Jovanovic & Peter L. Rousseau, 2009. "Extensive and Intensive Investment over the Business Cycle," NBER Working Papers 14960, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Peter Thompson, 2008. "Learning by Doing," Working Papers 0806, Florida International University, Department of Economics. [Downloadable!]
Gianfranco Enrico Atzeni & Oliviero Antonio Carboni, 2005. "ICT productivity and firm propensity to innovative investment: learning effect evidence from italina micro data," Industrial Organization 0503012, EconWPA. [Downloadable!]
Other versions:
- Gianfranco Atzeni & Oliviero Carboni, 2004. "ICT productivity and firm propensity to innovative investment: learning effect evidence from italian micro data," Working Paper CRENoS 200414, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
Huisman, K.J.M. & Kort, P.M., 1998. "Strategic investment in technological innovations," Discussion Paper 114, Tilburg University, Center for Economic Research. [Downloadable!]
Other versions:
- Huisman, Kuno J. M. & Kort, Peter M., 2003. "Strategic investment in technological innovations," European Journal of Operational Research, Elsevier, vol. 144(1), pages 209-223, January. [Downloadable!] (restricted)
Diego Martínez López & Jesús Rodríguez López & José Luis Torres Chacón, 2008. "ICT-specific technological change and productivity growth in the US 1980-2004," Working Papers 08.05, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
Other versions:
- Diego Martínez & Jesús Rodríguez & José L. Torres, 2008. "ICT-specific technological change and productivity growth in the US 1980-2004," Working Papers 2008-4, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center. [Downloadable!]
Andrea Bassanini & Stefano Scarpetta & Ignazio Visco, 2000. "Knowledge technology and economic growth: recent evidence from OECD countries," Research series 200005-2, National Bank of Belgium. [Downloadable!]
Other versions:
- Andrea Bassanini & Stefano Scarpetta & Ignazio Visco, 2000. "Knowledge, Technology and Economic Growth: Recent Evidence from OECD Countries," OECD Economics Department Working Papers 259, OECD, Economics Department. [Downloadable!]
Huisman, K.J.M. & Kort, P.M., 1999. "Strategic technology investment under uncertainty," Discussion Paper 18, Tilburg University, Center for Economic Research. [Downloadable!]
Argandoña, Antonio, 2001. "Nueva economía y el crecimiento económico, La," IESE Research Papers D/437, IESE Business School. [Downloadable!]
Douglas Dwyer, 1998. "Technology Locks, Creative Destruction, and Non-Convergence in Productivity Levels," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 430-473, April. [Downloadable!] (restricted)
Other versions:
- Douglas W Dwyer, 1995. "Technology Locks, Creative Destruction And Non-Convergence In Productivity Levels," Working Papers 95-6, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
Mehmet Yorukoglu, 2001. "EconomicDynamics Interviews Mehmet Yorukoglu on Economic Revolutions," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 3(1), November. [Downloadable!]
Boyan Jovanovic, 1998. "Michael Gort's Contribution to Economics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 327-337, April. [Downloadable!] (restricted)

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