Technology Adoption Costs and Productivity Growth: The Transition to Information Technology

Review of Economic Dynamics, 2002, vol. 5, issue 2, 443-469

Abstract: Using two panels of U.S. manufacturing industries, this paper estimates capital adjustment costs from 1961 to 1996. I find that from 1974-83 adjustment costs rose sharply --they more that doubled from about 3% of output to around 7%. Moreover, this increase is specifically associated with a shift to investment in information technology. But such large adoption costs imply that the Solow residual mismeasures productivity growth: adoption costs are resource costs representing an unmeasured investment. I find that when this investment is included, productivity grew about 0.4% per annum faster than official measures during the 70's and early 80's, reducing the size of the productivity "slowdown." Indeed, estimated productivity growth rates were roughly the same from 1974-88 as from 1949-73. Thus technology transitions critically affect productivity growth measurement. (Copyright: Elsevier)

Keywords: Technological change; productivity; adjustment cost; information technology (search for similar items in EconPapers)
JEL-codes: E22 O30 O47 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (48)

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DOI: 10.1006/redy.2001.0152

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