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Research Note ---Investments in Information Technology: Indirect Effects and Information Technology Intensity

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  • Neeraj Mittal

    (Ministry of Communications and Information Technology, Government of India, New Delhi, India 110003, and Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

  • Barrie R. Nault

    (Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

Abstract

Many studies measure the value of information technology (IT) by focusing on how much value is added rather than on the mechanisms that drive value addition. We argue that value from IT arises not only directly through changes in the factor input mix but also indirectly through IT-enabled augmentation of non-IT inputs and changes in the underlying production technology. We develop an augmented form of the Cobb-Douglas production function to separate and measure different productivity-enhancing effects of IT. Using industry-level data from the manufacturing sector, we find evidence that both direct and indirect effects of IT are significant. Partitioning industries into IT-intensive and non-IT-intensive, we find that the indirect effects of IT predominate in the IT-intensive sector. In contrast, the direct effects of IT predominate in the non-IT intensive sector. These results indicate structural differences in the role of IT in production between industries that are IT-intensive and those that are not. The implication for decision-makers is that for IT-intensive industries the gains from IT come primarily through indirect effects such as the augmentation of non-IT capital and labor.

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  • Neeraj Mittal & Barrie R. Nault, 2009. "Research Note ---Investments in Information Technology: Indirect Effects and Information Technology Intensity," Information Systems Research, INFORMS, vol. 20(1), pages 140-154, March.
    • Handle: RePEc:inm:orisre:v:20:y:2009:i:1:p:140-154
    DOI: 10.1287/isre.1080.0186
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    15. Koutroumpis, Pantelis & Leiponen, Aija & Thomas, Llewellyn D W, 2017. "The Young, the Old and the Innovative: The Impact of R&D on Firm Performance in ICT versus Other Sectors," ETLA Working Papers 51, The Research Institute of the Finnish Economy.
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