Information technology as a catalyst to the effects of education on labor productivity

Abstract

ABSTRACT While a decline in the dependency ratio provides a window of opportunity for many young economies, relying entirely on population structure changes may not be sufficient to increase productivity as national economies become increasingly knowledge based. This paper explores the channels of interaction between human capital, information technology, and productivity. Using fixed-effects and two-step difference GMM panel regressions on data from 121 countries from 1990 to 2017, we estimated log values of labor productivity with respect to log values of capital per worker, labor force size, population size, education, and information technology. We found that education and information technology both have a positive relationship with labor productivity. In addition, we also found positive interaction effects between education and information technology. This result suggests that information technology enhances the positive impact of human capital on labor productivity. Our results are validated by robustness checks using alternative proxies for education and information technology and two-step difference GMM to address endogeneity. Policies geared towards improving labor productivity should consider the complementary relationship between information technology and human capital.