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IT Spending and Firm Productivity: Additional Evidence from the Manufacturing Sector

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  • Kevin M Stolarick
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    Abstract

    The information systems (IS) "productivity paradox" is based on those studies that found little or no positive relationship between firm productivity and spending on IS. However, some earlier studies and one more recent study have found a positive relationship. Given the large amounts spent by organizations on information systems, it is important to understand the relationship between spending on IS and productivity. Beyond replicating positive results, an explanation is needed for the conflicting conclusions reached by these earlier studies. Data collected by the Bureau of the Census is analyzed to investigate the relationship between plant-level productivity and spending on IS. The relationship between productivity and spending on IS is investigated using assumptions and models similar to both studies with positive findings and studies with negative findings. First, the overall relationship is investigated across all manufacturing industries. Next, the relationship is investigated industry by industry. The analysis finds a positive relationship between plant-level productivity and spending on IS. The relationship is also shown to vary across industries. The conflicting results from earlier studies are explained by understanding the characteristics of the data analyzed in each study. A large enough sample size is needed to find the relatively smaller effect from IS spending as compared to other input spending included in the models. Because the relationship between productivity and IS spending varies across industries, industry mix is shown to be an important data characteristic that may have influenced prior results.

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    File URL: ftp://ftp2.census.gov/ces/wp/1999/CES-WP-99-10.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 99-10.

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    Date of creation: Oct 1999
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    Handle: RePEc:cen:wpaper:99-10

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    Related research

    Keywords: CES; economic; research; micro; data; microdata; chief; economist;

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    1. Erik Brynjolfsson & Lorin Hitt, 1996. "Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending," Management Science, INFORMS, vol. 42(4), pages 541-558, April.
    2. Griliches, Zvi, 1994. "Productivity, R&D, and the Data Constraint," American Economic Review, American Economic Association, vol. 84(1), pages 1-23, March.
    3. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
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    Cited by:
    1. John Haltiwanger & Ron Jarmin & Thorsten Schank, 2003. "Productivity, Investment in ICT and Market Experimentation: Micro Evidence from Germany and the U.S," Working Papers 03-06, Center for Economic Studies, U.S. Census Bureau.
    2. B.K. Atrostic & Sang V. Nguyen, 2002. "Computer Networks and U.S. Manufacturing Plant Productivity: New Evidence from the CNUS Data," Working Papers 02-01, Center for Economic Studies, U.S. Census Bureau.
    3. Sang Nguyen & B.K. Atrostic, 2005. "Computer Investment, Computer Networks and Productivity," Working Papers 05-01, Center for Economic Studies, U.S. Census Bureau.

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