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Research Report: Increasing Returns to Information Technology

Null Sigma, Inc., Wayne, New Jersey 07470
Rensselaer Polytechnic Institute, Troy, New York 12180
skudyba{at}nullsigma.com
diwanr{at}rpi.edu

This work analyzes firm-level investment in information technology and corresponding productivity through the use of a production function over the period from 1995-1997. The results are then compared to previous studies that utilized similar data and methodologies to compare productivity estimates over time. The analysis indicates that investment in IT enhances productivity over the period in question and has illustrated increasing returns over time. These findings are supported by the corresponding empirical analysis which yielded IT capital coefficients in a production function of (0.12, 0.16, 0.18) and IT flow coefficients in a similar function of (0.17, 0.24, 0.22) for the years 1995, 1996, and 1997, respectively. These results reflect the change in firm output given a one-percent change in the natural log of dollars invested in IT capital and flow, and are statistically significant.

Key Words: Productivity; Information Technology; Production Function; Efficiency; Innovation; Information Economy
History: This paper was received on December 2, 1999.