The Productivity of Information Technology Investments: New Evidence from IT Labor Data

This paper uses newly collected panel data that allow for significant improvements in the measurement and modeling of information technology (IT) productivity to address some longstanding empirical limitations in the IT business value literature. First, we show that using generalized method of momen...

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Bibliographic Details
Published in:Information systems research 2012-09, Vol.23 (3-part-1), p.599-617
Main Authors: Tambe, Prasanna, Hitt, Lorin M.
Format: Article
Language:English
Subjects:
Business structures
business value of IT
Capital expenditures
Datasets
Econometrics
economics of IS
Employment
Estimation methods
Evaluation
Generalized method of moments
Information storage and retrieval systems
Information technology
Investments
IT labor
Labor productivity
Marginal products
Production estimates
Productivity
Studies
Technological change
Value added
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Summary:This paper uses newly collected panel data that allow for significant improvements in the measurement and modeling of information technology (IT) productivity to address some longstanding empirical limitations in the IT business value literature. First, we show that using generalized method of moments-based estimators to account for the endogeneity of IT spending produces coefficient estimates that are only about 10% lower than unadjusted estimates, suggesting that the effects of endogeneity on IT productivity estimates may be relatively small. Second, analysis of the expanded panel suggests that (a) IT returns are substantially lower in midsize firms than in Fortune 500 firms; (b) they materialize more slowly in large firms-in midsize firms, unlike in larger firms, the short-run contribution of IT to output is similar to the long-run output contribution; and (c) the measured marginal product of IT spending is higher from 2000 to 2006 than in any previous period, suggesting that firms, and especially large firms, have been continuing to develop new, valuable IT-enabled business process innovations. Furthermore, we show that the productivity of IT investments is higher in manufacturing sectors and that our productivity results are robust to controls for IT labor quality and outsourcing levels.
ISSN:1047-7047
1526-5536
DOI:10.1287/isre.1110.0398