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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

    as
    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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    Citations

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    Cited by:

    1. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    2. De Ridder, M., 2019. "Market Power and Innovation in the Intangible Economy," Cambridge Working Papers in Economics 1931, Faculty of Economics, University of Cambridge.
    3. Panon, Ludovic, 2022. "Labor share, foreign demand and superstar exporters," Journal of International Economics, Elsevier, vol. 139(C).
    4. Erik Brynjolfsson & Wang Jin & Kristina McElheran, 2021. "The power of prediction: predictive analytics, workplace complements, and business performance," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 56(4), pages 217-239, October.
    5. Nikolas Zolas & Zachary Kroff & Erik Brynjolfsson & Kristina McElheran & David N. Beede & Cathy Buffington & Nathan Goldschlag & Lucia Foster & Emin Dinlersoz, 2020. "Advanced Technologies Adoption and Use by U.S. Firms: Evidence from the Annual Business Survey," NBER Working Papers 28290, National Bureau of Economic Research, Inc.
    6. repec:hal:spmain:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    7. Gabriel Smagghue, 2021. "Heterogeneous Policy Distortions and the Labor Share," Working papers 803, Banque de France.
    8. Clement E. Bohr & Mart'i Mestieri & Emre Enes Yavuz, 2023. "Aggregation and Closed-Form Results for Nonhomothetic CES Preferences," Papers 2311.06740, arXiv.org.
    9. Paulie, Charlotte, 2021. "Labor-share dynamics -The role of import competition," Working Paper Series 2021:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter J Klenow & Huiyu Li, 2023. "A Theory of Falling Growth and Rising Rents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2675-2702.
    11. Gabriel Smagghue, 2022. "Heterogeneous Policy Distortions and the Labor Share," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 56-79, January.
    12. Fabian Eckert & Sharat Ganapati & Conor Walsh, 2020. "Urban-Biased Growth: A Macroeconomic Analysis," CESifo Working Paper Series 8705, CESifo.
    13. repec:hal:wpspec:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    14. Joachim Hubmer, 2023. "The Race Between Preferences and Technology," Econometrica, Econometric Society, vol. 91(1), pages 227-261, January.
    15. Maarten de Ridder, 2022. "Market power and innovation in the intangible economy," POID Working Papers 064, Centre for Economic Performance, LSE.
    16. Chen, J. & Elliott, M. & Koh, A., 2020. "Capability Accumulation and Conglomeratization in the Information Age," Cambridge Working Papers in Economics 2069, Faculty of Economics, University of Cambridge.

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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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