Is the IT Revolution Over? An Asset Pricing View

Abstract

I study the IT sector's transition to its long-run share in the US economy and its future growth implications. My central estimates indicate that the IT revolution ends in mid-2020 and that future average annual labor productivity growth will fall to 2.09 percent from the 2.66 recorded over 1974-2015. I estimate these numbers by calibrating a model that links economy-wide growth with IT's sectoral market valuation to match historical data on factor shares, price-dividend ratios, growth rates, and discount rates. I show empirically the IT sector's price-dividend ratio univariately explains over half of the variation in future productivity growth.