The impact of IT investment on productivity of Taiwanese manufacturing firms

This paper employs the manufacturing sampling survey data from the industry, commerce, and service census of Taiwan in 1991 to explore the issue of whether IT investment brings about the productivity paradox. In order to take the improvement of product quality caused by IT investment into account, a proper computer price index is used to deflate the IT variable. This paper applies the Translog production function to construct an empirical framework. We use the Translog production function to jointly estimate marginal product, output, and substitution elasticities. Empirical results show that IT investment provides a significant contribution to productivity as indicated in the study of both full sample and subsamples, suggesting that there is no productivity paradox. We also find that IT capital is a net substitute for non-IT capital, implying that when IT prices change, the flow of the input to substitute for the others will occur.