Information Technology, Organizational Transformation and Productivity Growth: An Examination of the Brynjolfsson–Hitt Proposition

Abstract

This study investigates what happened to productivity growth during the Information Technology (IT) revolution in an IT‐driven economy, Korea. To this end, we have decomposed the source of productivity growth into technological change, technical efficiency and scale economies using a stochastic frontier function and examined how the composition of productivity growth has changed with different phases of IT developments. We have used panel data that is comprised of 4022 firms from 1996 to 2000. We have found that Korean firms have been quick to embrace organizational restructuring to adapt to a new business environment brought about by IT, which seems to be the major source of the success of Korean firms. We have also found that: (i) there is no substantial difference in productivity gains between IT‐producing firms and IT‐using firms; (ii) productivity growth is more robust to business cycles in an IT‐driven economy than in the traditional economy; and (iii) efficiency improvement attributed to organizational transformation plays a greater role in productivity growth as IT applications become more widespread.