Information technologies, embodiment and growth

This paper studies the conditions under which an IT revolution may endogenously occur. To this end, we construct an endogenous growth multisectoral model with a preeminent IT sector. Technological progress is embodied: New softwares can only be run on the the most recent generations of hardware. While the new softwares are copyrighted during a fixed period of time, they become public knowledge at a certain point in time, which generates positive externalities in the rest of the economy. First, we find that our model can give rise to multiple steady states due to strategic complementarities. Then we focus on the dynamic response of the economy to adverse shocks on the level of disembodied technological progress. Substitution effects are shown to arise: The labor resources are diverted from the final goods sector to sustain the creation and production of new softwares. During the IT boom, labor productivity’s growth slowdowns, the skill premium rises as well as the value of firms undertaking research. However, the registered IT boom is always transitory and nothing can be said about the long run sustainability of an IT-driven growth regime.