The productivity paradox and the business cycle

Abstract

From the early 1980s to the late 1990s overall productivity rates did not reflect the rising investment in information and computer technology (ICT). This paradox, the productivity paradox, which was widely discussed among economists may well turn out to be mainly a mirage once the assumption is excluded that investment has a short-run effect on productivity. The apparent productivity paradox seems to be rooted in an ICT infrastructure that is inadequate and in an increase in income disparities that thwart the realization of economies of scale.

Information technology (IT) productivity paradox in the 21st century

“…Irrespective of the level of analysis (country-level, industry-level or firm-level) the results remain ambiguous (Spithoven, 2003). Most studies conducted after 1995 tend to conclude there is no IT productivity paradox, while earlier research strongly supports its existence.…”

“…This view is supported by other research, but the growth in MFP after the year 2000 is only partially explained by investment in the IT sector (Oliner et al, 2007). Economic literature has identified several distinct possible causes of the paradox including cyclical factors (slowdown in productivity due to the negative stage of business cycle) (Gordon, 2000); insufficient or improper use of computer technologies (Oliner & Sichel, 1994); sectoral shifts in the economy (shifts from industries and agriculture to the dominating role of services) (Spithoven, 2003); energy crises.…”

“…The research approach was chosen to be congruent with previous studies for comparability of findings, and includes techniques used in previous studies of Spithoven (2003), Dedrick et al (2003), Saito (2001), Dewan andKraemer (1998), Brynjolfsson andHitt (1996a, b), Kraemer and Dedrick (1994) and Baily (1986). On the first level, country-level macroeconomic indicators are analyzed and compared to ICT investment dynamics.…”

“…During recent decades, the IT productivity paradox has been revisited periodically by many researchers (Baily, 1986;Berndt & Malone, 1995; Brynjolfsson & Hitt, 1995; David, 1990; Dewan & Kraemer, 1998;Jorgenson & Stiroh, 1995;Kraemer & Dedrick, 1994;Lee & Khatri, 2003;Oliner & Sichel, 2000;Oliner, Sichel, & Stiroh, 2007;Pilat, 2004;Pohjola, 2000;Rei, 2004;Spithoven, 2003 This is not the case for CRM investment.…”

“…This phenomenon became known as the 'IT productivity paradox'. Some researchers have reporting an end to the paradox, but this paper brings the research up-to-date suggesting that reports of an end to the paradox is most likely due to rapid IT industry growth in the run up to the Year 2000 phenomenon.During recent decades, the IT productivity paradox has been revisited periodically by many researchers (Baily, 1986;Berndt & Malone, 1995; Brynjolfsson & Hitt, 1995; David, 1990; Dewan & Kraemer, 1998;Jorgenson & Stiroh, 1995;Kraemer & Dedrick, 1994;Lee & Khatri, 2003;Oliner & Sichel, 2000;Oliner, Sichel, & Stiroh, 2007;Pilat, 2004;Pohjola, 2000;Rei, 2004;Spithoven, 2003 This is not the case for CRM investment.Modern methods make it possible to capture more accurate data. New data processing and collection approaches are able to quantify previously difficult to measure impacts of ICT, revealing new opportunities for research.…”