CREAT: Census Research Exploration and Analysis Tool

Are Some Firms Better at IT? Differing Relationships between Productivity and IT Spending

October 1999

Written by: Kevin M Stolarick

Working Paper Number:

CES-99-13

Abstract

Although recent studies have found a positive relationship between spending on information technology and firm productivity, the magnitude of this relationship has not been as dramatic as one would expect given the anecdotal evidence. Data collected by the Bureau of the Census is analyzed to investigate the relationship between plant-level productivity and spending on IT. This relationship is investigated by separating the manufacturing plants in the sample along two dimensions, total factor productivity and IT spending. Analysis along these dimensions reveals that there are significant differences between the highest and lowest productivity plants. The highest productivity plants tend to spend less on IT while the lowest productivity plants tend to spend more on IT. Although there is support for the idea that lower productivity plants are spending more on IT to compensate for their productivity shortcomings, the results indicate that this is not the only difference. The robustness of this finding is strengthened by investigating changes in productivity and IT spending over time. High productivity plants with the lowest amounts of IT spending tend to remain high productivity plants with low IT spending while low productivity plants with high IT spending tend to remain low productivity plants with high IT spending. The results show that management skill, as measured by the overall productivity level of a firm, is an additional factor that must be taken into consideration when investigating the IT "productivity paradox."

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Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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investment, production, productive, manufacturing, industrial, technology, growth, technological, employee, managerial, productivity differences, produce, productivity measures, measures productivity, efficient, strategic, expenditure, analysis productivity, profit, management, spending, performance, expense

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Census of Manufactures, Annual Survey of Manufactures, Longitudinal Research Database, Center for Economic Studies, Ordinary Least Squares, Total Factor Productivity, Cobb-Douglas, Financial, Insurance and Real Estate Industries

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