Information Technology and Productivity: a Review of the Literature

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Information Technology and Productivity: A Review of the Literature

Erik Brynjolfsson Shinkyu Yang MIT Sloan School of Management Cambridge, Massachusetts

Published in
Advances in Computers, Academic Press, Vol. 43, pages 179-214, 1996.

This research was sponsored by the MIT Center for Coordination Science, the MIT International Financial Services Research Center, and the Sloan Foundation. The paper is a revised and extended version of an article which originally appeared in the Communications of

the ACM, in December, 1993, and also reflects subsequent research in this area. Special thanks to Lorin Hitt for numerous valuable comments.

Information Technology and Productivity: A Review of the Literature

Erik Brynjolfsson Shinkyu Yang

Abstract

During the 1980s, the relationship between information technology (IT) and productivity became a source of debate: the astonishing improvements in computers’ underlying capabilities proved almost impossible to assess in terms of their effect on productivity. Fueled in part by the emergence of empirical research on IT productivity that generally did not identify significant productivity improvements, the perception that IT failed to live up to its promise prevailed. Recent research is more encouraging, as new data are identified and more sophisticated methodologies are applied. Several researchers document IT’s positive effect on productivity performance. Additionally, others approach IT’s contribution from different perspectives, examining its effect on intermediate measures, on consumer surplus, and on economic growth. Consequently, our presumption of a “productivity paradox” has diminished considerably. However, a careful review indicates that unequivocal evidence still remains elusive, with new questions emerging even as old puzzles fade. This survey categorizes relevant studies into four groups, identifies remaining productivity puzzles, and reviews four possible explanations for them: mismeasurement, lags, redistribution and mismanagement. The paper concludes with recommendations for investigating each of these explanations, including more careful applications of traditional methodologies, as well as employment of alternative, broader metrics of welfare to assess and enhance the benefits of IT.

TABLES OF CONTENTS

I. The “Productivity Paradox”—A Clash of Expectations and Statistics................................1 II. Research on the Productivity Effects of Information Technology......................................6 A. Economy-wide Productivity and Information Worker Productivity......................8 B. Industry-Level Studies of Information Technology Productivity...........................12 C. Firm-Level Studies of Information Technology Productivity................................16 D. Contribution to Consumer Surplus and Economic Growth..................................23 III. Remaining Paradox and Leading Explanations ...............................................................27 A. Measurement Errors..........................................................................................29 B. Lags..................................................................................................................35 C. Redistribution....................................................................................................37 D. Mismanagement ................................................................................................38 V. Conclusion....................................................................................................................41 A. Summary...........................................................................................................41 B. Where Do We Go From Here? .........................................................................42 Figures...............................................................................................................................48...
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