Working Paper: NBER ID: w10010
Authors: Susanto Basu; John G. Fernald; Nicholas Oulton; Sylaja Srinivasan
Abstract: We argue that unmeasured investments in intangible organizational capital associated with the role of information and communications technology (ICT) as a general purpose technology' can explain the divergent U.S. and U.K. TFP performance after 1995. GPT stories suggest that measured TFP should rise in ICT-using sectors, perhaps with long lags. Contemporaneously, investments in ICT may in fact be associated with lower TFP as resources are diverted to reorganization and learning. In both the U.S. and U.K., we find a strong correlation between ICT use and industry TFP growth. The U.S. results, in particular, are consistent with GPT stories: the TFP acceleration was located primarily in ICT-using industries and is positively correlated with industry ICT capital growth from the 1980s and early 1990s. Indeed, as GPT stories suggest, controlling for past ICT growth, industry TFP growth appears negatively correlated with increases in ICT capital services in the late 1990s. A somewhat different picture emerges for the U.K. TFP growth does not appear correlated with lagged ICT capital growth. But TFP growth in the late 1990s is strongly and positively associated with the growth of ICT capital services, while being strongly and negatively associated with the growth of ICT investment.
Keywords: productivity; information technology; general purpose technology; total factor productivity
JEL Codes: E22; O47; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unmeasured investments in intangible organizational capital associated with ICT (E22) | divergent TFP performance in the US and UK after 1995 (F29) |
| ICT use (L86) | industry TFP growth (O49) |
| past ICT growth (O49) | industry TFP growth (O49) |
| ICT capital growth in the late 1990s (O33) | industry TFP growth (O49) |
| growth of ICT capital services in the late 1990s (L86) | TFP growth in the UK (O49) |
| growth of ICT investment (O16) | TFP growth in the UK (O49) |