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IT and beyond: the contribution of heterogeneous capital to productivity

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Author Info
Daniel Wilson

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Abstract

This paper explores the relationship between capital composition and productivity using a unique and remarkably detailed data set on firm-level investment in the U.S. Using cross-sectional and longitudinal regressions, I find that several capital types, including computers, communications equipment, and software, are associated with current and subsequent years’ productivity. The implied marginal products are derived and compared to official data on rental prices; substantial differences exist for a number of key capital types. I also provide evidence of complementaries and substitutabilities among capital goods — a rejection of the common assumption of perfect substitutability.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 2004-13.

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Date of creation: 2004
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Handle: RePEc:fip:fedfap:2004-13

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Keywords: Information technology ; Capital ; Productivity;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Susanto Basu & John G. Fernald, 1999. "Are Apparent Productive Spillovers a Figment of Specification Error?," NBER Working Papers 5073, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-2), pages 1-74. [Downloadable!]
  4. Baruch Lev & Suresh Radhakrishnan, 2003. "The Measurement of Firm-Specific Organization Capital," NBER Working Papers 9581, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Brynjolfsson, Erik. & Hitt, Lorin M., 1995. "Paradox lost? : firm-level evidence on the returns to information systems spending," Working papers 3786-95., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  6. Gordon, Robert J, 2000. "Does the 'New Economy' Measure up to the Great Inventions of the Past?," CEPR Discussion Papers 2607, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Greenman, N. & Mairesse, J., 1996. "Computers and Productivity in France: Some Evidence," Monash Econometrics and Business Statistics Working Papers 15/96, Monash University, Department of Econometrics and Business Statistics.
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  8. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Chirinko, Robert S., 1993. "Multiple capital inputs, Q, and investment spending," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 907-928. [Downloadable!] (restricted)
  10. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, And The Demand For Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 339-376, February. [Downloadable!] (restricted)
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  11. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: US Economic Growth in the Information Age," OECD Economics Department Working Papers 261, OECD, Economics Department. [Downloadable!]
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  12. 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)
  13. Daniel J. Wilson, 2002. "Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 285-317, April. [Downloadable!] (restricted)
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  14. Sandra E. Black & Lisa M. Lynch, 2001. "How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 434-445, August. [Downloadable!] (restricted)
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  15. Berndt, Ernst R. & Morrison, Catherine J., 1992. "High-tech capital formation and economic performance in U.S. manufacturing industries : an exploratory analysis," Working papers 3419-92., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  16. Stephen D. Oliner & Daniel E. Sichel, 1994. "Computers and Output Growth Revisited: How Big Is the Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-2), pages 273-334. [Downloadable!]
  17. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April. [Downloadable!] (restricted)
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  18. Stiroh, Kevin J, 2002. "Are ICT Spillovers Driving the New Economy?," Review of Income and Wealth, Blackwell Publishing, vol. 48(1), pages 33-57, March. [Downloadable!] (restricted)
  19. Randy Becker & John Haltiwanger & Ron Jarmin & Shawn Klimek & Dan Wilson, 2005. "Micro and Macro Data Integration: The Case of Capital," Working Papers 05-02, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  20. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  21. Daniel J. Wilson, 2004. "Investment behavior of U.S. firms over heterogeneous capital goods: a snapshot," Working Papers in Applied Economic Theory 2004-21, Federal Reserve Bank of San Francisco. [Downloadable!]
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  22. Donald Siegel & Zvi Griliches, 1992. "Purchased Services, Outsourcing, Computers, and Productivity in Manufacturing," NBER Chapters, in: Output Measurement in the Service Sectors, pages 429-460 National Bureau of Economic Research, Inc. [Downloadable!]
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  23. Cummins, J.G. & Dey, M., 1998. "Taxation, Investment, and Firm Growth with Heterogeneous Capital," Working Papers 98-07, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  24. Brynjolfsson, Erik & Hitt, Lorin M., 2004. "Computing Productivity: Firm-Level Evidence," Working papers 4210-01, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  25. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May. [Downloadable!] (restricted)
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  26. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
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  27. Erik Brynjolfsson & Lorin Hitt, 1997. "Information Technology as a Factor of Production: The Role of Differences Among Firms," Working Paper Series 201, MIT Center for Coordination Science. [Downloadable!]
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  28. Goolsbee, Austan, 2004. "Taxes and the quality of capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 519-543, March. [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. B. Atrostic, 2008. "Measuring U.S. innovative activity: business data at the U.S. Census Bureau," The Journal of Technology Transfer, Springer, vol. 33(2), pages 153-171, April. [Downloadable!] (restricted)
  2. Daniel Wilson, 2004. "Investment Behavior of U.S. Firms Over Heterogenous Capital Goods: A Snapshot," Working Papers 04-19, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  3. Mirko Draca & Raffaella Sadun & John Van Reenen, 2006. "Productivity and ICT: A Review of the Evidence," CEP Discussion Papers dp0749, Centre for Economic Performance, LSE. [Downloadable!]
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