Information technology and productivity: Evidence from country-level data

This paper studies a key driver of the demand for the products and services of the global IT industry-returns from IT investments. We estimate an inte rcountry production function relating IT and non-IT inputs to GDP output, o n panel data from 36 countries over the 1985-1993 period. We find significa nt differences between developed and developing countries with respect to t heir structure of returns from capital investments. For the developed count ries in the sample, returns from IT capital investments are estimated to be positive and significant, while returns from non-IT capital investments ar e not commensurate with relative factor shares. The situation is reversed f or the developing countries subsample, where returns from non-IT capital ar e quite substantial, but those from IT capital investments are not statisti cally significant. We estimate output growth contributions of IT and non-IT capital and discuss the contrasting policy implications for capital invest ment by developed and developing economies.