5.5 Summary of Findings and Comparison with Other Studies

This chapter has presented the results from estimation techniques aimed at measuring the productive capacity of IT capital and its effect on output growth and labor productivity growth. These techniques were applied at various levels of analysis: national, sector, state detailed and aggregated industry levels.

The first equation (5.1) measured an output elasticity of IT capital valued at up to 21% (Table 5.1). Lehr and Lichtenberg (1999), using a similar model, found an elasticity of IT capital between 4% and 17%. They also showed that IT capital exhibited excess returns to investment, and my results are similar, although these excess returns may be mostly due to state and time effects.

Information technology capital is also found to have contributed to output growth between approximately 0.05 and 0.15 percentage points across states (Table 5.8). Various authors have found values ranging from –0.34 to +1.50, as reported in Table 5.10. Hence, my results fall into this range, but are specific to the methodology and data I have used. Oliner and Sichel (1994) have found that IT capital contributed 0.16 percentage points per year to output growth during the period 1970-1992, which is close to my results. Finally, the contribution of IT capital to labor productivity growth is estimated between 0.04 and 0.10 percentage points per year. The percentage of output and labor productivity growth due to IT capital varies across states from 1% to 11%. Hence, IT capital has proven to be a productive input, even if its small share of total capital prevented it from having had higher effects on growth.

An interesting finding that helps understand the national productivity paradox is that the productivity effects of IT capital seem to be lower for states that own the highest share of national IT capital stock (such as California and New York). This confirms the hypothesis of redistributions of gains of IT capital among states. Therefore, the productivity paradox may have been only a problem at the national level.

The next chapter reviews the literature on state productivity differences and the role of externalities. It precedes a presentation of a model measuring the effects of the localization patterns of IT on state and county labor productivity.