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Volume 8 Issue 3 December 2005
Measuring the Productivity of Computers: A Firm Level Analysis for Portugal
Maria Fraga O Martins and Pedro Santos Raposo, Universidade Nova Lisboa, ISEGI, Portugal |
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The information systems (IS) "productivity paradox" (Solow, 1987) is based on a first generation studies that found little or no positive relationship between firm productivity and spending on IS. However, some recent studies have found a positive relationship. Given the large amounts spent by organizations on information systems, it is important to understand the relationship between spending on IS and productivity. Data collected by the Portuguese National Institute of Statistics is analyzed to investigate the relationship between Portuguese firm’s productivity and spending on computers. This link is analysed using the usual Cobb-Douglas production function framework. First, the overall relationship is investigated using data on all firms. Then, we estimate the same model sector by sector. We find a positive elasticity of output for computer capital at the firm level. This relationship is also shown to vary significantly across the different economic sectors.
We also considered a model in which several employee characteristics are taken into account in order to capture complementary effects. We find that computer employees have a positive impact on firm productivity, but, curiously they are less productive than non-computer workers.
Because the relationship between productivity and computer spending varies significantly across economic sectors, sector mix is shown to be an important data characteristic that may have influenced results from first generation studies.
Keywords: Computer capital, Complementary effects, Productivity
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