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Technology Adoption Costs and Productivity Growth: The Transition to Information Technology

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Author Info
James Bessen () (Research on Innovation)

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Abstract

Using two panels of U.S. manufacturing industries, this paper estimates capital adjustment costs from 1961 to 1996. I find that from 1974-83 adjustment costs rose sharply --they more that doubled from about 3% of output to around 7%. Moreover, this increase is specifically associated with a shift to investment in information technology. But such large adoption costs imply that the Solow residual mismeasures productivity growth: adoption costs are resource costs representing an unmeasured investment. I find that when this investment is included, productivity grew about 0.4% per annum faster than official measures during the 70's and early 80's, reducing the size of the productivity "slowdown." Indeed, estimated productivity growth rates were roughly the same from 1974-88 as from 1949-73. Thus technology transitions critically affect productivity growth measurement. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2001.0152
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 5 (2002)
Issue (Month): 2 (April)
Pages: 443-469
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Handle: RePEc:red:issued:v:5:y:2002:i:2:p:443-469

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Related research
Keywords: Technological change; productivity; adjustment cost; information technology;

Other versions of this item:

Find related papers by JEL classification:
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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.:

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    Other versions:
  18. Kiley, Michael T., 2001. "Computers and growth with frictions: aggregate and disaggregate evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 171-215, December. [Downloadable!] (restricted)
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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.)

  1. Quella, Núria, 2007. "Intra- and Inter-Sectoral Knowledge Spillovers and TFP Growth Rates," MPRA Paper 2853, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information Technology Explain why Productivity Accelerated in the US but not the UK?," NBER Working Papers 10010, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Comin, D., 2002. "Using Investment Data to Assess the Importance of Price Mismeasurement," Working Papers 02-08, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Roberto M. Samaniego, 2008. "Entry, Exit and Investment-Specific Technical Change," PIER Working Paper Archive 08-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  5. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The case of the missing productivity growth: or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?," Working Paper Series WP-03-08, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  6. Adriaan Van Zon & Roberto Antonietti, 2007. "Education and Training in a Model of Endogenous Growth with Creative Wear-and-Tear," "Marco Fanno" Working Papers 0057, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
  7. Mika Maliranta & Petri Rouvinen, 2003. "Productivity Effects of ICT in Finnish Business," Discussion Papers 852, The Research Institute of the Finnish Economy. [Downloadable!]
  8. Dirk Krueger & Krishna B. Kumar, 2003. "US-Europe Differences in Technology-Driven Growth: Quantifying the Role of Education," NBER Working Papers 10001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," International Productivity Monitor, Centre for the Study of Living Standards, vol. 9, pages 52-61, Fall. [Downloadable!]
  10. Georg Duernecker, 2008. "Technology Adoption, Turbulence and the Dynamics of Unemployment," Economics Working Papers ECO2008/10, European University Institute. [Downloadable!]
  11. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," Working Papers 04-1, Bank of Canada. [Downloadable!]
  12. Celeste Amorim Varum & Bruno Cibrão, 2008. "On R&D, medium and high-tech industries and productivity: an application to the Portuguese case," Working Papers de Economia (Economics Working Papers) 51, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro. [Downloadable!]
  13. James Bessen, 2003. "IT Adoption Costs and Productivity: A Reply to Diego Comin," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 252-262, January. [Downloadable!] (restricted)
  14. Roberto M. Samaniego, 2008. "Entry, Exit and Investment-Specific Technical Change, Second Version," PIER Working Paper Archive 09-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Dec 2008. [Downloadable!]
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