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Information Technology and Returns to Scale

Author

Listed:
  • Danial Lashkari

    (Boston College)

  • Arthur Bauer

    (CREST)

  • Jocelyn Boussard

    (Banque de France)

Abstract

The rise of Information Technology (IT) is often linked to recent secular macroeconomic trends such as the fall in the labor share and the rise in industry concentration. This paper demonstrates a novel causal mechanism through which the fall in the price of IT capital con- tributes to these trends. It relies on newly constructed measures of software and hardware capital in the universe of French firms to document a strong correlation between firm size and the intensity of demand for IT. Using exogenous destination-level demand shocks in the sample of exporting firms, the paper identifies a positive elasticity of IT intensity with respect to firm output. A simple heterogeneous-firm model of industry equilibrium can rationalize these empirical patterns, if firm-level production function is nonhomothetic and the relative marginal product of IT rises with output. Given a large fall in the price of IT inputs, the calibrated model generates a sizable rise in industry concentration, and a fall in aggregate labor share and entry.

Suggested Citation

  • Danial Lashkari & Arthur Bauer & Jocelyn Boussard, 2019. "Information Technology and Returns to Scale," 2019 Meeting Papers 1380, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1380
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    References listed on IDEAS

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    1. Maya Eden & Paul Gaggl, 2018. "On the Welfare Implications of Automation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 15-43, July.
    2. Ulrich Doraszelski & Jordi Jaumandreu, 2018. "Measuring the Bias of Technological Change," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1027-1084.
    3. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    4. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 650-687.
    5. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
    6. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 650-687.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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