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Dedrick a Critical Review of Empirical Evidence

Dedrick a Critical Review of Empirical Evidence

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Published by: Jorge Tito on Oct 19, 2012
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Information Technology and Economic Performance: A CriticalReview of the Empirical Evidence
University of California, Irvine
For many years, there has been considerable debate about whether the IT revolutionwas paying off in higher productivity. Studies in the 1980s found no connection betweenIT investment and productivity in the U.S. economy, a situation referred to as the
 productivity paradox
. Since then, a decade of studies at the firm and country level hasconsistently shown that the impact of IT investment on labor productivity and economicgrowth is significant and positive. This article critically reviews the published research,more than 50 articles, on computers and productivity. It develops a general frameworkfor classifying the research, which facilitates identifying what we know, how well weknow it, and what we do not know. The framework enables us to systematicallyorganize, synthesize, and evaluate the empirical evidence and to identify bothlimitations in existing research and data and substantive areas for future research.The review concludes that the productivity paradox as first formulatedhas been effectively refuted. At both the firm and the country level, greater investmentin IT is associated with greater productivity growth. At the firm level, the reviewfurther concludes that the wide range of performance of IT investments among differentorganizations can be explained by complementary investments in organizational capitalsuch as decentralized decision-making systems, job training, and business processredesign.ITisnotsimplyatoolforautomatingexistingprocesses,butismoreimportantlyan enabler of organizational changes that can lead to additional productivity gains.In mid-2000, IT capital investment began to fall sharply due to slowing economicgrowth, the collapse of many Internet-related firms, and reductions in IT spending byother firms facing fewer competitive pressures from Internet firms. This reduction in ITinvestmenthashaddevastatingeffectsontheIT-producingsector,andmayleadtoslowereconomicandproductivitygrowthintheU.S.economy.Whiletheturmoilinthetechnologysector has been unsettling to investors and executives alike, this review shows that itshould not overshadow the fundamental changes that have occurred as a result of firms’investments in IT. Notwithstanding the demise of many Internet-related companies, thereturns to IT investment are real, and innovative companies continue to lead the way.Categories and Subject Descriptors: K.4.1 [
Computers and Society
]: Public PolicyIssues; K.4.2 [
Computers and Society
]: Social Issues; K.4.3 [
Computers andSociety
]: Organizational Impacts; K.6.0 [
Management of Computing andInformation Systems
]: General—
General Terms: Economics, Performance, Management Additional Key Words and Phrases: Information technology, productivity, economicperformance, firm, industry, country, management practicesThisreviewhasbeensupportedbygrantsfromtheU.S.NationalScienceFoundation(Computer,Informationand Engineering Directorate, Information and Intelligent Systems Division, Program on Digital Society andTechnologies), and IBM Global Services. Authors’ addresses: Center for Research on Information Technology and Organizations, GraduateSchool of Management, University of California, Irvine, 3200 Berkeley Place, Irvine, CA 92697; email:
.Permission to make digital/hard copy of part or all of this work for personal or classroom use is grantedwithout fee provided that the copies are not made or distributed for profit or commercial advantage, thecopyright notice, the title of the publication, and its date appear, and notice is given that copying is bypermission of ACM, Inc. To copy otherwise, to republish, to post on servers, or to redistribute to lists requiresprior specific permission and/or a fee.c
2003 ACM 0360-0300/03/0300-0001 $5.00
 ACM Computing Surveys, Vol. 35, No. 1, March 2003, pp. 1–28.
Dedrick et al.
“You can see the computer age everywhere butin the productivity statistics.”[Solow1987].“Despite differences in methodology and datasources,aconsensusisbuildingthattheremark-ablebehaviorofITpricesprovidesthekeytothesurge in economic growth.”[Jorgenson 2001].
1.1. Background
There has been a long-running debate inthe business press and the informationsystems and economics literature overwhether the information technology (IT)revolution is paying off in higher produc-tivity. The first studies, conducted in the1980s, found no connection between ITinvestment and productivity at the levelof firms, industries, or the economy as awhole [Loveman 1994; Roach 1987, 1989,1991;Strassmann1990].SkepticspointedoutthatheavyITinvestmenthadoccurredconcurrently with the productivity slow-down that began in 1973 in the U.S.This so-called
productivity paradox
stimulated economists, managementscientists, and information systemsresearchers to conduct more rigorousscientific analyses of the relationship be-tween IT and productivity [Brynjolfsson1993,1996;Bresnahan1999;Brynjolfssonand Hitt 1995, 1996, 1998; Oliner andSichel 2000; Jorgenson 2001; Jorgensonand Stiroh 2000; Bosworth and Triplett2000; Council of Economic Advisers(CEA) 2001]. These studies, which usedlarger datasets and more refined researchmethods, revealed positive and significantimpacts from IT investments at the firmandcountrylevel.Moreover,someofthesestudies showed that the economic boomand surge in productivity of the late 1990swas largely due to heavy investment inIT and the growth of the Internet.The debate over IT and productivitythenshiftedtowhethertheIT-ledeconomywould lead to permanent improvementin the prospects for economic growth, orwhether it was a temporary phenomenon,with much of the acceleration in produc-tivitydrivenbythebusinesscycleandcon-centrated in just a few sectors of the econ-omy, a point of view espoused by Gordon[2000].Given the continuing debate aboutwhether IT investments pay off, thisresearch review critically evaluates thelarge body of evidence-based research onthe subject. The purpose is to criticallysurvey the published research on IT andeconomic performance to determine whatwe know and what we do not know aboutthe returns to IT investments. The goal isto help direct future research into poten-tially productive channels so that it cancontribute to knowledge about whether ornot, as well as how, IT investments canbe effectively introduced and managed forgreater payoffs.Specifically, the aim of this article is to(1) organize and integrate the researchon returns to IT investment in a way thatadds understanding to work in the area,(2) provide an unbiased and objective view of the documented returns (or lack of returns) to IT investment at three levelsof analysis—firm, industry, and country,(3) identify the factors that contribute topayoffs from these investments, (4) eval-uate issues in current research, and(5) identify opportunities for future re-search. It is intended that this review willhelpreaderstounderstandthisimportantarea of research, stimulate experts to dealwith unresolved issues in ongoing andfuture research, and assist senior execu-tives in future decision-making about ITinvestments in their organizations.We begin with a discussion of the scopeof the literature reviewed and the organi-zation of this article.
1.2. Scope of Literature Review
This review examines more than 50 em-pirical studies based on economic anal-ysis that have appeared between 1985and 2002.
Early studies were based on
Thereisotherwritingonthesubjectthatisnotpartof this review. For example, Laudon and Marr [1994]broughtpoliticalperspectivestobearonunderstand-ing the productivity paradox when they argued thatproductivity returns from IT investment might not
 ACM Computing Surveys, Vol. 35, No. 1, March 2003.
 Information Technology and Economic Performance
Fig. 1
. IT and economic performance—framework for literature review.
small samples and limited data, whereasrecent studies have been able to take ad- vantage of both better data and largersamples, including time-series data. Thereview concentrates mainly on studieswhose results have been published inpeer-reviewed scholarly journals such as
 American Economic Review, Communica-tions of the ACM, Information Systems Research, Journal of Economic Perspec-tives, Journal of Management Informa-tion Systems, Management Science, MISQuarterly, Organization Science, Quar-terly Journal of Economics, The Infor-mation Society, The Brookings Papers
World Development
. These journalsare known for having high standardsfor review and acceptance and there-fore are most appropriate for a criticalreview that seeks to achieve an objec-tive and balanced perspective on the re-search. The review also includes a fewother works because of their significanceor because they help to round out the re-search in an area. Finally, Brynjolfsson[1993] and Brynjolfsson and Yang [1996]have provided excellent reviews of earlierresearch.
even be an objective in the macroculture of some or-ganizations. Similarly David [1990] and King [1996]brought historical perspectives to the IT and produc-tivity debate.
1.3. Organization of this Review
The review is organized as follows.Section 2 introduces a conceptual frame-work for thinking about IT and economicperformance. Sections 3 through 5 assessthe literature at three levels of analysis:firm, industry, and country. Section 6presents both substantive and method-ological issues that need to be addressedin future research, and Section 7 presentsspecific, high-priority recommendationsfor future research based upon keydeficits in the current body of knowledge.Finally, Section 8 discusses limitationsof the survey and highlights some majorconclusions.
In order to organize the prior researchand to identify gaps for future efforts, wedeveloped a conceptual framework (seeFigure 1) that allows us to map and as-sesstheresearchfindings.Theframeworkhelps to define the key variables and re-lationships addressed in the different re-search studies reviewed herein. Moving from left to right in Figure 1, the frame-work identifies the various inputs (laborand capital) to the production process andcomplementary factors of production thatinfluence the production process, and en-ables an assessment of the contribution of 
 ACM Computing Surveys, Vol. 35, No. 1, March 2003.

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