Information intensity and the impact of IT investments on productivity: an industry level perspective

Does it pay to invest in IT? Research over the last two decades has resulted in mixed findings. While many studies have shown a positive and significant relationship between IT investments and firm productivity and performance measures, the question of causality remains: Do higher IT investments contribute to better performance or does better performance contribute to higher IT investments? In this study, we examine this issue using explicit causal models and industry level data. Our results suggest that there is a significantly positive correlation as well as a significantly positive causal relationship between IT investments and productivity. IT investments do contribute to productivity in most of the industries in our sample. On the other hand, we find indications that firms allocate IT investments based on their productivity. We postulate that the impact of IT investments is moderated by the interaction between the product information intensity and value chain information intensity of firms.