The Case of the Missing Productivity Growth, or Does Information Technology Explain Why Productivity Accelerated in the United States but Not in the United Kingdom?

Abstract

Solow's paradox has disappeared in the United States but remains alive and well in the United Kingdom. In particular, the United Kingdom experienced an information and communications technology (ICT) investment boom in the 1990s, in parallel with the United States, but measured total factor productivity (TFP) has decelerated rather than accelerated in recent years. We ask whether ICT can explain the divergent TFP performance in the two countries. Stories of ICT as a general purpose technology (GPT) suggest that measured TFP should rise in ICT-using sectors (reflecting either unobserved accumulation of intangible organizational capital, spillovers, or both) but perhaps with long lags. Contemporaneously, investments in ICT may in fact be associated with lower TFP because resources are diverted to reorganization and learning. In both the United States and the United Kingdom, we find a strong correlation between ICT use and industry TFP growth. The U.S. results are consistent with GPT stories: the acceleratio...