Information technology and economic performance: A critical review of the empirical evidence

For many years, there has been considerable debate about whether the IT revolution was paying off in higher productivity. Studies in the 1980s found no connection between IT investment and productivity in the U.S. economy, a situation referred to as the productivity paradox. Since then, a decade of studies at the firm and country level has consistently shown that the impact of IT investment on labor productivity and economic growth is significant and positive. This article critically reviews the published research, more than 50 articles, on computers and productivity. It develops a general framework for classifying the research, which facilitates identifying what we know, how well we know it, and what we do not know. The framework enables us to systematically organize, synthesize, and evaluate the empirical evidence and to identify both limitations in existing research and data and substantive areas for future research. The review concludes that the productivity paradox as first formulated has been effectively refuted. At both the firm and the country level, greater investment in IT is associated with greater productivity growth. At the firm level, the review further concludes that the wide range of performance of IT investments among different organizations can be explained by complementary investments in organizational capital such as decentralized decision-making systems, job training, and business process redesign. IT is not simply a tool for automating existing processes, but is more importantly an enabler of organizational changes that can lead to additional productivity gains. In mid-2000, IT capital investment began to fall sharply due to slowing economic growth, the collapse of many Internet-related firms, and reductions in IT spending by other firms facing fewer competitive pressures from Internet firms. This reduction in IT investment has had devastating effects on the IT-producing sector, and may lead to slower economic and productivity growth in the U.S. economy. While the turmoil in the technology sector has been unsettling to investors and executives alike, this review shows that it should not overshadow the fundamental changes that have occurred as a result of firms' investments in IT. Notwithstanding the demise of many Internet-related companies, the returns to IT investment are real, and innovative companies continue to lead the way. © 2003 ACM

INSTITUTIONS AND THE INTERNATIONAL DIFFUSION OF INFORMATION TECHNOLOG

The production and use of information technology (IT) in developed countries is wcll established and growing at a rapid pace. Newly industrializing countries are adopting both IT production and use as national goals. Developing countries are beginning to formulate plans to do the same. The institutional role in the international diffusion of IT is not well understood, but it is clear from the literature on innovation that the institutional role is critical. The paper makes four points. First, a traditional and fairly rigorous way of thinking about innovations - the economic perspective deriving from Schumpeter and Hicks - has been shown by studies from economic history and sociology/communications of innovation to be inadequate for explaining the dynamics of innovative change. The missing element is understanding of differential roles played by institutions. Second, among those promoting the need for institutional intervention there has been a debate about whether innovation is primarily supply-pushed or demand-pulled. The answer to the question has important institutional implications. The evidence, again mostly from economic history, shows it to be both, in iterative fashion. Thus institutions can intervene meaningfully on both sides. Third, there are two major forms of institutional intervention: influence and regulation. The possible intervention actions of institutions can be encompassed by a 2 x 2 matrix with supply-push and demand-pull on one dimension and influence and regulation on the other. Finally, if government wants to intervene, there are six classes of roles that might be pursued to affect innovation

Entropies of Negative Incomes, Pareto-Distributed Loss, and Financial Crises

Health monitoring of world economy is an important issue, especially in a time of profound economic difficulty world-wide. The most important aspect of health monitoring is to accurately predict economic downturns. To gain insights into how economic crises develop, we present two metrics, positive and negative income entropy and distribution analysis, to analyze the collective “spatial” and temporal dynamics of companies in nine sectors of the world economy over a 19 year period from 1990–2008. These metrics provide accurate predictive skill with a very low false-positive rate in predicting downturns. The new metrics also provide evidence of phase transition-like behavior prior to the onset of recessions. Such a transition occurs when negative pretax incomes prior to or during economic recessions transition from a thin-tailed exponential distribution to the higher entropy Pareto distribution, and develop even heavier tails than those of the positive pretax incomes. These features propagate from the crisis initiating sector of the economy to other sectors

Complementarities between IT and Organizational Structure: The Role of Corporate Exploration and Exploitation

The decentralization of organizational decision authority has been shown to be complementary to Information Technology (IT) in prior research. We draw from the information processing view of organizations, the IT and de/centralization debate, and organizational learning theory to argue that IT payoffs can also be improved by greater centralization of decision authority, contingent on a firm’s corporate learning type. We argue that an exploratory learning type is best pursued with a decentralized organization design, while an exploitative learning type requires a centralized organization design. We hypothesize that under corporate exploration, IT payoffs are enhanced through greater decentralization, whereas under corporate exploitation, returns to IT are improved by greater centralization. Our study uses a novel multi‐source panel on the IT capital, the degree of de/centralization, and the performance of almost 260 German manufacturing firms. We estimate production functions to assess the contribution of combning IT with de/centralization to firmlevel productivity under different corporate learning types. Our results strongly support our hypotheses and hold up to a variety of robustness tests

Information technology and economic performance: A critical review of the empirical evidence

For many years, there has been considerable debate about whether the IT revolution was paying off in higher productivity. Studies in the 1980s found no connection between IT investment and productivity in the U.S. economy, a situation referred to as the productivity paradox. Since then, a decade of studies at the firm and country level has consistently shown that the impact of IT investment on labor productivity and economic growth is significant and positive. This article critically reviews the published research, more than 50 articles, on computers and productivity. It develops a general framework for classifying the research, which facilitates identifying what we know, how well we know it, and what we do not know. The framework enables us to systematically organize, synthesize, and evaluate the empirical evidence and to identify both limitations in existing research and data and substantive areas for future research. The review concludes that the productivity paradox as first formulated has been effectively refuted. At both the firm and the country level, greater investment in IT is associated with greater productivity growth. At the firm level, the review further concludes that the wide range of performance of IT investments among different organizations can be explained by complementary investments in organizational capital such as decentralized decision-making systems, job training, and business process redesign. IT is not simply a tool for automating existing processes, but is more importantly an enabler of organizational changes that can lead to additional productivity gains. In mid-2000, IT capital investment began to fall sharply due to slowing economic growth, the collapse of many Internet-related firms, and reductions in IT spending by other firms facing fewer competitive pressures from Internet firms. This reduction in IT investment has had devastating effects on the IT-producing sector, and may lead to slower economic and productivity growth in the U.S. economy. While the turmoil in the technology sector has been unsettling to investors and executives alike, this review shows that it should not overshadow the fundamental changes that have occurred as a result of firms' investments in IT. Notwithstanding the demise of many Internet-related companies, the returns to IT investment are real, and innovative companies continue to lead the way. © 2003 ACM