NCPA - National Center for Policy Analysis

Computer Technology And Productivity

June 21, 1999

Economists are still unsure whether growth is any higher because of high technology. As Nobel Prize-winning economist Robert Solow once put it, "you can see the computer age everywhere but in the productivity statistics."

For example, a 1994 Brookings Institution study found computer hardware added just 0.16 percent per year to economic output between 1970 and 1992. Including software almost doubles this figure, but the overall impact is still small. The study concluded "computers probably have not caused much of whatever pickup in aggregate productivity growth has occurred in recent years."

  • More recently, the Congressional Budget Office calculated that information technology (IT) added $845 billion to the gross domestic product in 1997, up from $531 billion in 1993.
  • This means that IT has risen from 8.1 percent of GDP in 1993 to 10.4 percent in 1997.
  • While impressive, the increase in IT output as a share of the growth of GDP has actually fallen, from 27.5 percent in 1995 to 15.6 percent in 1997.

Computers affect all industries, both directly and indirectly. Thus investment may be a better indicator. According to the Department of Commerce, business investment in computers has risen from 7.7 percent of all investment in producers' durable equipment in 1990 to an astonishing 45.7 percent last year.

One of the authors of the Brookings study, reviewed more recent data and found "a striking step-up in the contribution of computers to output growth." Other economists are also saying that the sharp rise in productivity growth -- from an average of 0.33 percent per year from 1993 through 1995 to 2.2 percent from 1996 through 1998 -- may be due to the growing role of computers.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 21, 1999.

 

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