Information Technology and Productivity in Developed and Developing Countries

Abstract

Previous research has found that information technology (IT) investment is associated with significant productivity gains for developed countries but not for developing countries. Yet developing countries have continued to increase their investment in IT rapidly. Given this apparent disconnect, there is a need for new research to study whether the investment has begun to pay off in greater productivity for developing countries. We analyze new data on IT investment and productivity for 45 countries from 1994 to 2007, and compare the results with earlier research. We find that upper-income developing countries have achieved positive and 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 find that the productivity effects of IT are moderated by country factors, including human resources, openness to foreign investment, and the quality and cost of the telecommunications infrastructure. The academic implication is that the effect of IT on productivity is expanding from the richest countries into a large group of developing countries. The policy implication is that lower-tier developing countries can also expect productivity gains from IT investments, particularly through policies that support IT use, such as greater openness to foreign investment, increased investment in tertiary education, and reduced telecommunications costs.