Previous research at the cross-national level has found that IT investment is associated with significant productivity gains for developed countries but not for developing countries. Notwithstanding the lack of evidence of productivity gains, developing countries have increased their investment in IT dramatically. Given all of this investment, there is a need for research to study whether the investment has begun to pay off in greater productivity for developing countries. In this study, we employ production function analysis on new data on IT investment and productivity for 49 countries from 1985-2004, and compare the results from 1994-2004 with the earlier years (1985-1993) that were covered by Dewan and Kraemer (2000). The goal is to find out whether developing countries have been able to achieve significant productivity gains from IT investment in the more recent period as they have increased their IT capital stocks and gained experience with the use of IT. We also incorporate a set of complementary factors missing from previous studies, including telecommunications investment and prices, human resources, and foreign direct investment, to determine whether these factors have an impact on the relationship of IT to productivity. We find that for developing countries, there was no significant effect for IT capital for the 1985-1993 sample, but the relationship is positive and significant for the 1994-2004 sample. On the other hand, for developed countries, IT capital is significant across all time periods. Non-IT capital stock and labor hours also are positive and significant across all samples and time periods as expected. We also find developing countries with higher levels of tertiary education and lower telecommunication prices achieve greater productivity gains. To our knowledge, this is the first empirical research to find productivity impacts from IT investments in developing countries. The finding that developing countries only began to realize payoffs from IT investment in more recent years suggests that there may be some critical level of IT capital stock, or some minimum level of accumulated experience (human capital) required before such gains become evident. For policymakers in developing countries, these findings provide evidence that IT investments are likely to lead to productivity gains and give support for policies to promote IT investment and use.
Dedrick, Jason; Kraemer, Kenneth; and Shih, Eric, "IT and Productivity in Developed and Developing Countries" (2010). GlobDev 2010. 15.