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

52 Pages Posted: 25 Nov 2003

See all articles by Susanto Basu

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

John G. Fernald

Federal Reserve Bank of San Francisco

Nicholas Oulton

London School of Economics - Centre for Macroeconomics(CFM)

Sylaja Srinivasan

Bank of England - Monetary Analysis

Date Written: November 2003

Abstract

We argue that unmeasured investments in intangible organizational capital-associated with the role of information and communications technology (ICT) as a "general purpose technology" - can explain the divergent U.S. and U.K. TFP performance after 1995. GPT stories suggest that measured TFP should rise in ICT-using sectors, perhaps with long lags. Contemporaneously, investments in ICT may in fact be associated with lower TFP as resources are diverted to reorganization and learning. In both the U.S. and U.K., we find a strong correlation between ICT use and industry TFP growth. The U.S. results, in particular, are consistent with GPT stories: the TFP acceleration was located primarily in ICT-using industries and is positively correlated with industry ICT capital growth from the 1980s and early 1990s. Indeed, as GPT stories suggest, controlling for past ICT growth, industry TFP growth appears negatively correlated with increases in ICT capital services in the late 1990s. A somewhat different picture emerges for the U.K. TFP growth does not appear correlated with lagged ICT capital growth. But TFP growth in the late 1990s is strongly and positively associated with the growth of ICT capital services, while being strongly and negatively associated with the growth of ICT investment.

Suggested Citation

Basu, Susanto and Fernald, John G. and Oulton, Nicholas and Srinivasan, Sylaja, The Case of the Missing Productivity Growth: Or, Does Information Technology Explain Why Productivity Accelerated in the United States But Not the United Kingdom? (November 2003). Harvard Economic Research Discussion Paper No. 2021; FRB Chicago Working Paper No. 2003-08. Available at SSRN: https://ssrn.com/abstract=472903 or http://dx.doi.org/10.2139/ssrn.472903

Susanto Basu (Contact Author)

Boston College, College of Arts and Sciences, Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467-3806
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National Bureau of Economic Research (NBER) ( email )

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John G. Fernald

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

Nicholas Oulton

London School of Economics - Centre for Macroeconomics(CFM) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://https://ideas.repec.org/e/pou3.html

Sylaja Srinivasan

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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