Resolving the productivity paradox

Abstract

Solow [R. Solow, We’d Better Watch out, New York Times Book Review, 1987, p. 36] made the statement that ‘we see computers everywhere except in the productivity statistics’. This has come to be known as the “productivity paradox”. Whether this is in fact a paradox or a direct implication of the diffusion of technical change is the focus of this paper. In particular, the implications of two different theoretical treatments of technology diffusion in an economy are considered; the traditional model of [R. Solow, A contribution to the theory of economic growth, Q. J. Econ., 70 (1956) 65–94] and the alternative view of [R.G. Lipsey, K.I. Carlaw, C.T. Bekar, Economic Transformations: General Purpose Technologies and Long Term Economic Growth, Oxford University Press, Oxford, 2005]. These two distinct views articulate two general empirically testable hypotheses that are captured in a number of specific tests including measures of the diffusion of information and communication technologies (ICT). Although weak, the evidence supports the view of [R.G. Lipsey, K.I. Carlaw, C.T. Bekar, Economic Transformations: General Purpose Technologies and Long Term Economic Growth, Oxford University Press, Oxford, 2005].