UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

2. Theoretical Analysis
2.1 ICT Dynamics and Growth
It was not fully clear until 2001 whether high US growth in the 1990s was significantly
related to high productivity growth in information and communication technologies.
GORDON (1999) claimed that the acceleration of US productivity growth in the 1990s
was mainly due to cyclical factors on the one hand, and to high productivity growth in
the production of information technology goods (which would account for the remainder
of accelerated productivity growth) on the other. A skeptical view also comes from
KILEY (2000) who points to high adjustment costs associated with information technology
(IT) investment implying a reduction of productivity growth in a period of high
IT investment. The contrasting view that both production of IT goods and use of IT
contributed considerably to aggregate productivity growth in the 1990s has been particularly
emphasized by JORGENSEN / STIROH (2000), OLINER / SICHEL (2000),
WHELAN (2000a,b), and the COUNCIL OF ECONOMIC ADVISORS (2000, 2001),
all of which provide some empirical evidence for their view.
With different researchers holding opposite views on an important empirical
phenomenon, here the acceleration of productivity growth, the most straightforward
way to clarify the issue is theoretical research on the one hand and more detailed empirical
research on the other hand. As regards theoretical aspects we will subsequently
present some reflections where we will argue that differences in productivity growth in
the US and Euroland / Germany in the 1990s can partly be explained by differentials in
ICT dynamics and the associated direct and indirect growth effects. As regards the empirical
side it seems that three papers have brought clear evidence that both the production
of IT goods and the use of IT were important for the acceleration of productivity
growth in the 1990s. STIROH (2001) has presented an empirical study with industrylevel
data for the US. He shows that most IT-intensive sectors recorded significantly
larger productivity gains than other industries. Using a battery of econometric tests he
shows a strong correlation between IT capital accumulation and labor productivity
where a novel decomposition of aggregate labor productivity is presented. The crucial
conclusion is that virtually all of the aggregate productivity acceleration can be traced
to the industries that either produce IT or use IT rather intensively with hardly any contribution
coming from sectors that are less involved in the IT revolution. STIROH
writes (2001, p.2-3):
“Industry-level data show that the recent U.S. acceleration in productivity is a
broad-based phenomenon that reflects gains in a majority of industries through the late
1990s… For example, the mean productivity acceleration for 61 industries from 1987-
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