Saunders, Adam

English

ScholarlyCommons@Penn

University of PennsylvaniaScholarlyCommonsOperations, Information and Decisions Papers Wharton Faculty Research12-2010Information Technology and Productivity Growth:German Trends and OECD ComparisonsAdam SaundersUniversity of PennsylvaniaFollow this and additional works at: http://repository.upenn.edu/oid_papersPart of the Databases and Information Systems Commons, Growth and Development Commons,and the Labor Economics CommonsThis paper is posted at ScholarlyCommons. http://repository.upenn.edu/oid_papers/291For more information, please contact repository@pobox.upenn.edu.Recommended CitationSaunders, A. (2010). Information Technology and Productivity Growth: German Trends and OECD Comparisons. Journal ofEconomic Literature, 48 (4), 1057-1059. Retrieved from http://repository.upenn.edu/oid_papers/291Information Technology and Productivity Growth: German Trends andOECD ComparisonsDisciplinesDatabases and Information Systems | Growth and Development | Labor EconomicsThis review is available at ScholarlyCommons: http://repository.upenn.edu/oid_papers/2911057Book Reviewsunderstanding of the past will be improved by cultivating a variety of approaches across many disciplines, instead of insisting on methodologi-cal uniformity.Finally returning to the group of “receptive” historians to whom this volume is targeted, I wondered what their reaction would be to the parenthetical suggestion that natural experiments “preferably [be] quantitative and aided by statisti-cal analysis” (p. 2). In an effort to be welcoming, the editors describe large sample sizes as “prefer-able.” But could it be that they are, in fact, nec-essary? After all, even if two subjects start with identical initial conditions, as is the case, for example, in studies of monozygotic twin pairs, researchers still compile large samples in order to extract causal signals from noise. Just as econo-mists would not trust the results from a twin study conducted on a single set of siblings, should we as social scientists reject historical case studies that compare, for example, one city to another? If so, how can we ever hope to share methods with even the most receptive of historians?One answer to this question is that historical case studies can generate hypotheses that can be fur-ther tested by gathering a large sample that can be subjected to statistical scrutiny.2 Diamond’s essay in the volume offers an useful template of this approach. In the first half of the piece, he notes fundamental differences in the economic devel-opment of Haiti and the Dominican Republic; despite being located on the same island, GDP per capita in the Dominican Republic is six times higher than in Haiti. Haiti, he observes, is also substantially more deforested than its eastern neighbor. But, deforestation is only a proximate cause for underdevelopment. Diamond digs deeper to search for underlying causes of this environmental outcome, suggesting that Haiti may suffer from a less suitable micro-climate or from a destructive colonial past. In order to 2 Some economists may reject the idea of generating hypotheses from historical case studies, arguing that hypotheses should arise from models rather than from observation. While addressing this philosophical debate is beyond the scope of this review, I will simply say here that, to my mind, it is a mistake to view historical observation as “a-theoretical.” Rather, I believe that theory of some kind—whether explicit or implicit—will always determine the selection of historical cases, the variables to be com-pared, and the interpretation of evidentiary patterns. determine the importance of these various factors, Diamond moves beyond the two-part comparison to a dataset of sixty-nine Polynesian islands, some of which also suffered from devastating episodes of deforestation. Haber’s essay on banking systems in the United States, Mexico, and Brazil provides another example of how this shared scholarly pro-cess could operate. Haber proposes various causal factors that can explain the emergence of a demo-cratic banking system, including broad-based suf-frage and political competition. Further tests of the “Haber hypothesis” would require collecting a larger sample in another setting, for example com-paring across U.S. states. Few of us, as individual scholars, have the time, resources, or aptitude to both perform in-depth case studies and collect large datasets to test hypotheses using statistical methods. As a result, conducting natural experiments in history will require an academic division of labor that includes historians and historically inclined social scientists. Natural Experiments of History offers a first step in this interdisciplinary conversation, providing a valuable primer in experimental logic for scholars amenable to the idea of controlled comparisons. However, I think that the conversa-tion should go substantially further than it does in this volume and believe (hopefully not too naively) that historians of many persuasions can be persuaded that various methods can be com-plements to each other and that there can be sub-stantial gains from trade across the disciplines.Leah BoustanUniversity of California, Los Angeles, and NBERO Economic Development, Technological Change, and GrowthInformation Technology and Productivity Growth: German Trends and OECD Comparisons. By Theo S. Eicher and Thomas Strobel. Ifo Economic Policy series. Cheltenham, U.K. and Northampton, Mass.: Elgar, 2009. Pp. viii, 102. $90.00. ISBN 978–1–84844–091–3.  JEL 2010–0676Between 1996 and 2000, labor productiv-ity growth in the United States increased from its long-term rate of 1.4 percent per year to 2.6 Journal of Economic Literature, Vol. XLVIII (December 2010)1058percent. From 2001 to 2005, productivity accel-erated further, averaging 3.0 percent growth per year. There is a near unanimous consensus in the literature that information and communications technology (ICT)1 was responsible for these two surges in productivity growth. Although Germany had access to the same technologies as did the United States during that time period (in fact, the world’s largest manufacturer of Enterprise Resource Planning software, SAP AG, is based there), it did not enjoy the same productivity improvements. In fact, Germany experienced two successive declines in productivity. From 1992 to 1995, annual productivity growth in Germany was 2.4 percent—almost a percentage point higher than U.S. productivity growth at the time. Yet German productivity growth fell to 2.0 percent from 1996 to 2000, and then fell again to 1.3 percent from 2001 to 2005.2 In Information Technology and Productivity Growth: German Trends and OECD Comparisons, Theo Eicher and Thomas Strobel use their recently con-structed industry-level dataset of the German economy to undertake an examination of why productivity differed so greatly in the two coun-tries. As part of their analysis, they also examine the role of ICT and economic growth in other OECD economies.This inquiry should be of interest to both econ-omists and policymakers. Even small changes in productivity can matter enormously when com-pounded over decades. Take, for example, the fact that real GDP per capita in the United States has increased by a factor of more than thirty since 1800.3 If it had grown 0.1 percentage points less per year, then there would only be a twenty-five-fold increase by today—or about 20 percent less GDP per person. Thus, productivity growth is a 1 To be consistent with the authors of the book, I will use the term ICT. Others use information technology (IT). The distinction is not important for the purpose of this review.2 The U.S. and German productivity growth rates cited in this paragraph are used by the authors and based on published numbers from the Bureau of Labor Statistics and the German Federal Statistical Office, as of October 1, 2008 (p. 22). It should be noted that productivity data is subject to continuous revision. 3  Source: MeasuringWorth. 2010. www.measuring-worth.com (accessed September 27, 2010).critical issue because it determines living stan-dards in the long run.To perform their comparative analyses, the authors (along with Oliver Roehn) undertook a careful and painstaking effort to construct a database of investment and capital stocks that cover fifty-two industries spanning the German economy. Since the German Federal Statistical Office does not publish industry data at this level of detail, their database and the methodology used to create it (as detailed in chapter 2) is one of the major contributions of the book. In their analysis of the data, Eicher and Strobel find that the performance of ICT-intensive industries is a strong indicator of the productivity growth in a country. While (as the authors note in chap-ter 3) these industries were “a drag on German productivity growth due to their [total factor productivity] TFP growth declines post 2000” (p. 42), their counterparts in the United States significantly contributed to productivity growth during the same period. Expanding their analy-sis in chapter 4 to a sample of OECD countries over the same time period, they find that all of the high-productivity countries also had strong pro-ductivity growth in their ICT-intensive industries. Moreover, in chapter 5, Eicher and Strobel focus on software-intensive industries within OECD countries and find that these industries contrib-ute the lion’s share to labor productivity and TFP growth. These chapters clearly document the cor-relation between ICT and economic growth. In later chapters, the authors explore other interesting relationships based on industry-level distinctions. When dividing the industries in their dataset by skill intensity in chapter 6, they note that while the United States demonstrated strong ICT-skill complementarities, the oppo-site was true for Germany. In chapter 7, Eicher and Strobel divide the industries into four differ-ent types of innovation activity. They determine which countries in the sample invest most in each type of R&D, and then examine the relationship between innovation activity and productivity growth. While the different cuts of the industry-level data are revealing, I would have enjoyed the book more if Eicher and Strobel wove an integrated narrative that tied together the various findings. Because the industries were divided several 1059Book Reviewstimes, the detailed nature of the analysis made it difficult to grasp the larger picture. The book also lacked a concluding chapter that summarized the key take-aways from their study. The inclusion of a few case studies (such as Walmart’s innova-tive use of technology detailed in the McKinsey Global Institute’s 2001 report) or a comparison of their research to studies conducted at the firm level would have provided more context for their industry-level findings.For example, the authors carefully docu-ment the significant productivity deceleration in the ICT-intensive industries that occurred in Germany from 2001 to 2005. However, they are silent on why they believe this happened. Eicher and Strobel also describe the extent to which skill-intensive service industries in Germany “have not managed to leverage the innovation and TFP con-tributions usually associated with ICT capital-skill complementarities” (p. 70). Again, they do not provide a satisfying explanation of why that is the case or suggestions as to how this could change. While the authors examine the fine-grained details of industry contributions to ICT-skill complemen-tarities and productivity growth, providing poten-tial explanations would give policymakers more guidance as to how to help their economies make the most of ICT investments. One possible explanation for the differences between German and U.S. productivity is that German firms did not make comparable organiza-tional changes around ICT as did U.S. firms and, thus, did not yield the same benefits from ICT. The authors do not explore this issue or account for existing literature. Recent studies have estab-lished that complementary business  practices are necessary to get the full benefits from ICT (Timothy F. Bresnahan, Erik Brynjolfsson and Lorin M. Hitt 2002; Brynjolfsson, Hitt, and Shinkyu Yang 2002), and that such investments can take several years to yield significant benefits (Brynjolfsson and Hitt 2003).In summary, this book and the dataset will be of special interest to those studying Europe’s largest economy, and the short chapters on each of the topics described above can provide a use-ful starting point for more in-depth research by those who want to do a comparative analysis of the United States and Europe. While Eicher and Strobel make an important contribution by creating a German industry-level dataset and documenting the differences between German productivity growth and that of other countries, there is a deeper story waiting to be told that explains why those differences exist. ReferencesBresnahan, Timothy F., Erik Brynjolfsson, and Lorin M. Hitt. 2002. “Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence.” Quarterly Journal of Eco-nomics, 117(1): 339–76.Brynjolfsson, Erik, and Lorin M. Hitt. 2003. “Comput-ing Productivity: Firm-Level Evidence.” Review of Economics and Statistics, 85(4): 793–808.Brynjolfsson, Erik, Lorin M. Hitt, and Shinkyu Yang. 2002. “Intangible Assets: Computers and Organiza-tional Capital.” Brookings Papers on Economic Activ-ity, 1: 137–81.McKinsey Global Institute. 2001. US Productivity Growth 1995–2000: Understanding the Contribution of Information Technology Relative to Other Factors. http://www.mckinsey.com.Adam SaundersThe Wharton School, University of Pennsylvania

Information Technology and Productivity Growth: German Trends and OECD Comparisons

Kosmopolis

University of Pennsylvania
ScholarlyCommons
Operations, Information and Decisions Papers Wharton Faculty Research
12-2010
Information Technology and Productivity Growth:
German Trends and OECD Comparisons
Adam Saunders
University of Pennsylvania
Follow this and additional works at: http://repository.upenn.edu/oid_papers
Part of the Databases and Information Systems Commons, Growth and Development Commons,
and the Labor Economics Commons
This paper is posted at ScholarlyCommons. http://repository.upenn.edu/oid_papers/291
For more information, please contact repository@pobox.upenn.edu.
Recommended Citation
Saunders, A. (2010). Information Technology and Productivity Growth: German Trends and OECD Comparisons. Journal of
Economic Literature, 48 (4), 1057-1059. Retrieved from http://repository.upenn.edu/oid_papers/291
Information Technology and Productivity Growth: German Trends and
OECD Comparisons
Disciplines
Databases and Information Systems | Growth and Development | Labor Economics
This review is available at ScholarlyCommons: http://repository.upenn.edu/oid_papers/291
1057Book Reviews
understanding of the past will be improved by 
cultivating a variety of approaches across many 
disciplines, instead of insisting on methodologi-
cal uniformity.
Finally returning to the group of “receptive” 
historians to whom this volume is targeted, I 
wondered what their reaction would be to the 
parenthetical suggestion that natural experiments 
“preferably [be] quantitative and aided by statisti-
cal analysis” (p. 2). In an effort to be welcoming, 
the editors describe large sample sizes as “prefer-
able.” But could it be that they are, in fact, nec-
essary? After all, even if two subjects start with 
identical initial conditions, as is the case, for 
example, in studies of monozygotic twin pairs, 
researchers still compile large samples in order 
to extract causal signals from noise. Just as econo-
mists would not trust the results from a twin study 
conducted on a single set of siblings, should we 
as social scientists reject historical case studies 
that compare, for example, one city to another? If 
so, how can we ever hope to share methods with 
even the most receptive of historians?
One answer to this question is that historical case 
studies can generate hypotheses that can be fur-
ther tested by gathering a large sample that can be 
subjected to statistical scrutiny.2 Diamond’s essay 
in the volume offers an useful template of this 
approach. In the first half of the piece, he notes 
fundamental differences in the economic devel-
opment of Haiti and the Dominican Republic; 
despite being located on the same island, GDP 
per capita in the Dominican Republic is six times 
higher than in Haiti. Haiti, he observes, is also 
substantially more deforested than its eastern 
neighbor. But, deforestation is only a proximate 
cause for underdevelopment. Diamond digs 
deeper to search for underlying causes of this 
environmental outcome, suggesting that Haiti 
may suffer from a less suitable micro-climate 
or from a destructive colonial past. In order to 
2 Some economists may reject the idea of generating 
hypotheses from historical case studies, arguing that 
hypotheses should arise from models rather than from 
observation. While addressing this philosophical debate is 
beyond the scope of this review, I will simply say here that, 
to my mind, it is a mistake to view historical observation 
as “a-theoretical.” Rather, I believe that theory of some 
kind—whether explicit or implicit—will always determine 
the selection of historical cases, the variables to be com-
pared, and the interpretation of evidentiary patterns.
 determine the importance of these various factors, 
Diamond moves beyond the two-part comparison 
to a dataset of sixty-nine Polynesian islands, some 
of which also suffered from devastating episodes 
of deforestation. Haber’s essay on banking systems 
in the United States, Mexico, and Brazil provides 
another example of how this shared scholarly pro-
cess could operate. Haber proposes various causal 
factors that can explain the emergence of a demo-
cratic banking system, including broad-based suf-
frage and political competition. Further tests of 
the “Haber hypothesis” would require collecting a 
larger sample in another setting, for example com-
paring across U.S. states. 
Few of us, as individual scholars, have the 
time, resources, or aptitude to both perform in-
depth case studies and collect large datasets to 
test hypotheses using statistical methods. As a 
result, conducting natural experiments in history 
will require an academic division of labor that 
includes historians and historically inclined social 
scientists. Natural Experiments of History offers 
a first step in this interdisciplinary conversation, 
providing a valuable primer in experimental logic 
for scholars amenable to the idea of controlled 
comparisons. However, I think that the conversa-
tion should go substantially further than it does 
in this volume and believe (hopefully not too 
naively) that historians of many persuasions can 
be persuaded that various methods can be com-
plements to each other and that there can be sub-
stantial gains from trade across the disciplines.
Leah Boustan
University of California, Los Angeles, and NBER
O Economic Development, 
Technological Change, and Growth
Information Technology and Productivity Growth: 
German Trends and OECD Comparisons. 
By Theo S. Eicher and Thomas Strobel. Ifo 
Economic Policy series. Cheltenham, U.K. and 
Northampton, Mass.: Elgar, 2009. Pp. viii, 102. 
$90.00. ISBN 978–1–84844–091–3. 
 JEL 2010–0676
Between 1996 and 2000, labor productiv-
ity growth in the United States increased from 
its long-term rate of 1.4 percent per year to 2.6 
Journal of Economic Literature, Vol. XLVIII (December 2010)1058
percent. From 2001 to 2005, productivity accel-
erated further, averaging 3.0 percent growth per 
year. There is a near unanimous consensus in the 
literature that information and communications 
technology (ICT)1 was responsible for these two 
surges in productivity growth. Although Germany 
had access to the same technologies as did the 
United States during that time period (in fact, 
the world’s largest manufacturer of Enterprise 
Resource Planning software, SAP AG, is based 
there), it did not enjoy the same productivity 
improvements. In fact, Germany experienced 
two successive declines in productivity. From 
1992 to 1995, annual productivity growth in 
Germany was 2.4 percent—almost a percentage 
point higher than U.S. productivity growth at the 
time. Yet German productivity growth fell to 2.0 
percent from 1996 to 2000, and then fell again to 
1.3 percent from 2001 to 2005.2 In Information 
Technology and Productivity Growth: German 
Trends and OECD Comparisons, Theo Eicher 
and Thomas Strobel use their recently con-
structed industry-level dataset of the German 
economy to undertake an examination of why 
productivity differed so greatly in the two coun-
tries. As part of their analysis, they also examine 
the role of ICT and economic growth in other 
OECD economies.
This inquiry should be of interest to both econ-
omists and policymakers. Even small changes in 
productivity can matter enormously when com-
pounded over decades. Take, for example, the 
fact that real GDP per capita in the United States 
has increased by a factor of more than thirty since 
1800.3 If it had grown 0.1 percentage points less 
per year, then there would only be a twenty-five-
fold increase by today—or about 20 percent less 
GDP per person. Thus, productivity growth is a 
1 To be consistent with the authors of the book, I will 
use the term ICT. Others use information technology (IT). 
The distinction is not important for the purpose of this 
review.
2 The U.S. and German productivity growth rates cited 
in this paragraph are used by the authors and based on 
published numbers from the Bureau of Labor Statistics 
and the German Federal Statistical Office, as of October 
1, 2008 (p. 22). It should be noted that productivity data is 
subject to continuous revision. 
3  Source: MeasuringWorth. 2010. www.measuring-
worth.com (accessed September 27, 2010).
critical issue because it determines living stan-
dards in the long run.
To perform their comparative analyses, the 
authors (along with Oliver Roehn) undertook 
a careful and painstaking effort to construct a 
database of investment and capital stocks that 
cover fifty-two industries spanning the German 
economy. Since the German Federal Statistical 
Office does not publish industry data at this level 
of detail, their database and the methodology 
used to create it (as detailed in chapter 2) is one 
of the major contributions of the book. In their 
analysis of the data, Eicher and Strobel find that 
the performance of ICT-intensive industries is 
a strong indicator of the productivity growth in 
a country. While (as the authors note in chap-
ter 3) these industries were “a drag on German 
productivity growth due to their [total factor 
productivity] TFP growth declines post 2000” 
(p. 42), their counterparts in the United States 
significantly contributed to productivity growth 
during the same period. Expanding their analy-
sis in chapter 4 to a sample of OECD countries 
over the same time period, they find that all of the 
high-productivity countries also had strong pro-
ductivity growth in their ICT-intensive industries. 
Moreover, in chapter 5, Eicher and Strobel focus 
on software-intensive industries within OECD 
countries and find that these industries contrib-
ute the lion’s share to labor productivity and TFP 
growth. These chapters clearly document the cor-
relation between ICT and economic growth. 
In later chapters, the authors explore other 
interesting relationships based on industry-level 
distinctions. When dividing the industries in 
their dataset by skill intensity in chapter 6, they 
note that while the United States demonstrated 
strong ICT-skill complementarities, the oppo-
site was true for Germany. In chapter 7, Eicher 
and Strobel divide the industries into four differ-
ent types of innovation activity. They determine 
which countries in the sample invest most in each 
type of R&D, and then examine the relationship 
between innovation activity and productivity 
growth. 
While the different cuts of the industry-level 
data are revealing, I would have enjoyed the book 
more if Eicher and Strobel wove an integrated 
narrative that tied together the various findings. 
Because the industries were divided several 
1059Book Reviews
times, the detailed nature of the analysis made it 
difficult to grasp the larger picture. The book also 
lacked a concluding chapter that summarized the 
key take-aways from their study. The inclusion 
of a few case studies (such as Walmart’s innova-
tive use of technology detailed in the McKinsey 
Global Institute’s 2001 report) or a comparison 
of their research to studies conducted at the firm 
level would have provided more context for their 
industry-level findings.
For example, the authors carefully docu-
ment the significant productivity deceleration 
in the ICT-intensive industries that occurred in 
Germany from 2001 to 2005. However, they are 
silent on why they believe this happened. Eicher 
and Strobel also describe the extent to which skill-
intensive service industries in Germany “have not 
managed to leverage the innovation and TFP con-
tributions usually associated with ICT capital-skill 
complementarities” (p. 70). Again, they do not 
provide a satisfying explanation of why that is the 
case or suggestions as to how this could change. 
While the authors examine the fine-grained details 
of industry contributions to ICT-skill complemen-
tarities and productivity growth, providing poten-
tial explanations would give policymakers more 
guidance as to how to help their economies make 
the most of ICT investments. 
One possible explanation for the differences 
between German and U.S. productivity is that 
German firms did not make comparable organiza-
tional changes around ICT as did U.S. firms and, 
thus, did not yield the same benefits from ICT. 
The authors do not explore this issue or account 
for existing literature. Recent studies have estab-
lished that complementary business  practices 
are necessary to get the full benefits from ICT 
(Timothy F. Bresnahan, Erik Brynjolfsson and 
Lorin M. Hitt 2002; Brynjolfsson, Hitt, and 
Shinkyu Yang 2002), and that such investments 
can take several years to yield significant benefits 
(Brynjolfsson and Hitt 2003).
In summary, this book and the dataset will be 
of special interest to those studying Europe’s 
largest economy, and the short chapters on each 
of the topics described above can provide a use-
ful starting point for more in-depth research by 
those who want to do a comparative analysis of 
the United States and Europe. While Eicher 
and Strobel make an important contribution by 
creating a German industry-level dataset and 
documenting the differences between German 
productivity growth and that of other countries, 
there is a deeper story waiting to be told that 
explains why those differences exist. 
References
Bresnahan, Timothy F., Erik Brynjolfsson, and Lorin 
M. Hitt. 2002. “Information Technology, Workplace 
Organization, and the Demand for Skilled Labor: 
Firm-Level Evidence.” Quarterly Journal of Eco-
nomics, 117(1): 339–76.
Brynjolfsson, Erik, and Lorin M. Hitt. 2003. “Comput-
ing Productivity: Firm-Level Evidence.” Review of 
Economics and Statistics, 85(4): 793–808.
Brynjolfsson, Erik, Lorin M. Hitt, and Shinkyu Yang. 
2002. “Intangible Assets: Computers and Organiza-
tional Capital.” Brookings Papers on Economic Activ-
ity, 1: 137–81.
McKinsey Global Institute. 2001. US Productivity 
Growth 1995–2000: Understanding the Contribution 
of Information Technology Relative to Other Factors. 
http://www.mckinsey.com.
Adam Saunders
The Wharton School, University of Pennsylvania


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Information Technology and Productivity Growth: German Trends and OECD Comparisons

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