Let's Switch to the Cloud: Cloud Adaption and Its Effect on IT Investment and Productivity

35 Pages Posted: 16 Sep 2022

See all articles by Tomaso Duso

Tomaso Duso

German Institute for Economic Research (DIW Berlin); TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization; Centre for Economic Policy Research (CEPR)

Alexander Schiersch

German Institute for Economic Research (DIW Berlin)

Date Written: September 2022

Abstract

The advent of cloud computing promises to improve the way firms utilize IT solutions. Firms are expected to replace large and inflexible fixed-cost investments in IT with more targeted variable spending in cloud solutions. In addition, cloud usage is expected to increase the productivity of firms, as it allows them to quickly customize the IT they require to their specific needs. We assess these assertions using data on a representative sample of firms provided by the German statistical offices for the years 2014 and 2016, which allows to observe who are the cloud users. Our analysis explicitly accounts for the self-selection into cloud adoption within an endogenous treatment regression framework. Broadband availability at the municipality level is used as an exogenous shifter for cloud usage. We show that, while cloud adoption does not impact IT investment in any sectors, it does significantly improve labor productivity for firms in manufacturing and in information and communication services.

Keywords: Cloud computing, investment, productivity, IT, substitution, firm performance

JEL Classification: D24,D25,L60,L80,O14,O33

Suggested Citation

Duso, Tomaso and Schiersch, Alexander, Let's Switch to the Cloud: Cloud Adaption and Its Effect on IT Investment and Productivity (September 2022). DIW Berlin Discussion Paper No. 2017, Available at SSRN: https://ssrn.com/abstract=4221050 or http://dx.doi.org/10.2139/ssrn.4221050

Tomaso Duso (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization ( email )

Berlin, 10585
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Alexander Schiersch

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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