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The Information Technology Productivity Paradox

Author

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  • Mehmet Yorukoglu

    (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)

Suggested Citation

  • Mehmet Yorukoglu, 1998. "The Information Technology Productivity Paradox," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 551-592, April.
    • Handle: RePEc:red:issued:v:1:y:1998:i:2:p:551-592
    DOI: 10.1006/redy.1998.0016
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    References listed on IDEAS

    as
    1. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    2. 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 342-362, June.
    3. Erik Brynjolfsson & Thomas W. Malone & Vijay Gurbaxani & Ajit Kambil, 1994. "Does Information Technology Lead to Smaller Firms?," Management Science, INFORMS, vol. 40(12), pages 1628-1644, December.
    4. Frank R. Lichtenberg, 1993. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc.
    5. 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 561-583, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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