Information Technology Investment and National Productivity

Using the country-level information technology (IT) expenditures and productivity data for the period from 1992 to 2000, we estimate production function augmented with IT capital stock in the first-difference form. As discussed in prior studies, we confirm that IT expenditures have significant positive effects on national productivity growth. The effects of IT expenditure on productivity growth hold for a short-term (1-year) as well as for a longer-term (4-year and 8-year). Using two theory-based measures of IT maturity, we find that the IT maturity is an important factor that explains the relationship between IT expenditures and national productivity. In addition, we find that the effect of IT expenditures is even higher when the countries are at the mature stage of IT expenditures. Furthermore, we present evidence that IT externalities improve the effect of IT expenditures on productivity growth.