Paradox Lost? Firm-level Evidence of High Returns to Information Systems Spending
AbstractThe "productivity paradox" of information systems (IS) is that, despite enormous improvements in the underlying technology, the benefits of IS spending have not been found in aggregate output statistics. One explanation is that IS spending may lead to increases in product quality or variety which tend to be overlooked in aggregate output statistics, even if they increase sales at the firm-level. Furthermore, the restructuring and cost-cutting that are often necessary to realize the potential benefits of IS have only recently been undertaken in many firms. Our study uses new firm-level data on several components of IS spending for 1987-1991. The dataset includes 367 large firms which generated approximately $1.8 trillion dollars in output in 1991. We supplemented the IS data with data on other inputs, output, and price deflators from other sources. As a result, we could assess several econometric models of the contribution of IS to firm-level productivity. Our results indicate that IS have made a substantial and statistically significant contribution to firm output. We find that between 1987 and 1991, gross return on investment (ROI) for computer capital averaged 81% for the firms in our sample. We find that the ROI for computer capital is greater than the return to other types of capital investment and that IS labor spending generates several times as much output as spending on non-IS labor and expenses. Because the models we applied were essentially the same as those that have been previously used to assess the contribution of IS and other factors of production, we attribute the different results to the fact that our data set is more current and larger than others explored. We conclude that the "productivity paradox" disappeared by 1991, at least in our sample of firms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by MIT Center for Coordination Science in its series Working Paper Series with number 162.
Date of creation: Jan 1997
Date of revision:
Contact details of provider:
Web page: http://ccs.mit.edu/wpmenu.html
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Paul A. David, 2005.
"Understanding Digital Technology’s Evolution and the Path of Measured Productivity Growth: Present and Future in the Mirror of the Past,"
- David, P.A., 2000. "Understanding Digital Technology's Evolution and the Path of Measured Productivity Growth: Present and Future in the Mirror of the Past," Papers 99-011, United Nations World Employment Programme-.
- Onyeiwu, Steve, 2002. "Inter-Country Variations in Digital Technology in Africa: Evidence, Determinants, and Policy Applications," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.