On the relationship between IT investment and economic performance

Abstract

This paper discusses the relationship between IT investment and economic performance. This is composed of two parts. One part is related to causality, another part is the effectiveness of IT investment. First, This paper investigated the causal relationship between IT investment and economic performance with the office, computing and accounting machinery (OCAM) and gross domestic product (GDP) statistics from the United States for the period 1961 to 2001. Due to non-stationary aspects of series, found by unit root tests, it was deemed applicable to apply growth models using the first difference of the series. The results indicate that IT investment growth causes economic performance growth, but is not caused by economic performance growth; IT investment growth affects economic performance growth over longer time periods. Second, to reveal the evidence that IT productivity paradox does not exist in reality, we examine the relationship between IT investment and economic performance under a time lag and the information intensity of industry. As a result, we not only found the positive effect of IT investment at an instant, but also positive lagged effect. Furthermore, both the immediate and lagged effect in a high information-intensive industry are larger than in a low information-intensive industry, and the size of lagged effect is larger than any immediate effect regardless of the information-intensity of the industry. In addition, the effects of IT investment in a high information-intensive industry may appear more quickly than in a low information-intensive industry. We conclude that firms in the high information-intensive industry need to be more cognizant of performance factors when investing in IT investment than in the low information-intensive industry. Moreover, it is necessary to consider the time lag between IT investment and firm performance.