IT and Economic Performance: Evidence From Micro Studies

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CHAPTER V:

IT AND ECONOMIC PERFORMANCE: EVIDENCE FROM MICRO DATA STUDIES

By B.K. Atrostic and Ron Jarmin* Micro data—that is, data on individual businesses that underlie key economic indicators—allow us to go behind published statistics and ask how IT affects businesses’ economic performance. Years ago, analyses indicated a positive relationship between IT and productivity, even when official aggregate statistics still pointed towards a “productivity paradox.” Now, such analyses shed light on how varied that relationship is across businesses, and how IT makes its impacts. This chapter focuses on research about businesses based on micro data collected by the U.S. Census Bureau. We highlight the kinds of questions about the use and impact of IT that only micro data allow us to address. Micro data studies in the United States and in other OECD countries show that IT affects the productivity and growth of individual economic units. Specific estimates of the size of the effect vary among studies. Researchers comparing manufacturing plants in the United States and Germany, for example, find that in each country investing heavily in IT yields a productivity premium, but that the premium is higher in the United States than it is in Germany. They also find that the productivity premium varies much more for U.S. manufacturers. This greater variability is consistent with the view that the U.S. policy and institutional environments may be more conducive to experimentation by U.S. businesses. What kind of IT investments do U.S. businesses make? Census Bureau data on U.S. manufacturing establishments show that they invest in both computer networks and the kind of complex software that coordinates multiple business processes within and among establishments. About 50 percent of these plants have networks, while fewer than 10 percent have invested in this complex software. Such a wide difference between the presence of networks and

* Ms Atrostic (barbara.kathryn.atrostic@census.gov) is Senior Economist, and Mr. Jarmin (ron.s.jarmin@census.gov) is Acting Director, Center for Economic Studies, U.S. Census Bureau.

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complex software in manufacturing, and equally wide-ranging differences in their presence among detailed manufacturing industries, highlight the diversity of IT use among businesses. Plants with networks have higher productivity, even after controlling for many of the plant’s economic characteristics in the current and prior periods. Similar results are found in other OECD countries. Some studies suggest that businesses need to make parallel investments in worker training and revised workplace practices before IT investments yield productivity gains. Careful micro data research shows that the relationship between IT and economic performance is complex. “IT” emerges as a suite of alternatives from which businesses make different choices. Estimates of the size of the effect, and how IT makes its impact, remain hard to pinpoint. Data gaps make it hard to conduct careful analyses on the effect of IT. Continuing efforts by researchers and statistical organizations are filling some of the data gaps, but the gaps remain largest for the sectors outside manufacturing—the sectors that are the most IT-intensive. More definitive research requires that statistical agencies make producing micro data a priority.

What Are Micro Data?
Micro data generally contain information about many characteristics of the economic unit, such as plant employment, years in business, share of IT in costs, ways it uses IT, and its economic performance. Micro data exist for both businesses and individuals, and can be developed by private and public organizations. This chapter focuses on research using micro data about businesses that are collected by the U.S. Bureau of the Census. BENEFITS OF MICRO DATA RESEARCH Standard analyses of productivity and similar economic phenomena frequently assume that businesses are...
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