Comparing models of IT and economic growth: An empirical investigation

Abstract

Does IT help generate economic growth? Studies in developed economies say that the answer is yes. Yet, when we also consider emerging markets, the answer is less clear. Some studies find value from IT, while others fail to find any value. One possible reason for the discrepancy is the model used. We may need a new model when trying to compare the value of IT investments between both developed and developing countries. In this paper, we derive a model for analyzing IT investments at the country level. Although similar to the previous approaches, this model has one important difference: it disaggregates the historic investments in IT and current investments in IT. Furthermore, instead of relying on the perpetual inventory method to measure capital stock, we measure the current level of IT infrastructure with an index based on the ITUs Digital Access Index. This reduces a common source of measurement error. Using the new analytical model, we empirically test the model versus the traditional model. When using the traditional model, we once again fail to find a positive significant benefit from IT. When using our new model, however, we find that IT has a positive and significant effect on economic growth.