Computing Productivity: Firm-Level Evidence

Erik Brynjolfsson and Lorin Hitt

The Review of Economics and Statistics, 2003, vol. 85, issue 4, 793-808

Abstract: We explore the effect of computerization on productivity and output growth using data from 527 large U.S. firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using 1-year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to 5 times greater over long periods (using 5- to 7-year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2003
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