Is there an ICT impact on TFP? A heterogeneous dynamic panel approach

Publication date: 25 May 2003 | Publication type: NIESR Discussion Paper | NIESR Author(s): O'Mahony, M; Vecchi, M | JEL Classification: C33, C44, D24, O3. | NIESR Discussion Paper Number: 219

Using a new set of industry data for the US and the UK and an appropriate econometric approach, this paper provides new evidence on the impact of Information and Communication Technology (ICT) on Total Factor Productivity (TFP). We compare the results from standard panel data techniques with an heterogeneous dynamic panel data estimation method. The traditional industry panel data analysis fails to find a positive impact of ICT on output/TFP growth. This paper argues that this is due to heterogeneity across industries, particularly in the time dimension. The alternative technique we use, which allows for industry specific dynamics, yields a positive and significant long-run impact of ICT on TFP.

Keyword tags: 
productivity, ICT capital, heterogeneous dynamic panels