The changing returns on IT investment

Abstract

PurposePrior IT productivity research usually assumes constant returns on IT investment. This study suggests that the impact of IT investment on productivity may not be constant but may change with the IT investment scale and over time. Specifically, we divide IT investment into commercial IT and in-house IT and investigate their changing impacts on industry labor productivity.Design/methodology/approachA model of the productivity impacts of commercial IT and in-house IT with changing effects of scale and over time is developed and empirically tested based on industry-level panel data from the US. Bureau of Economic Analysis (BEA).FindingsThe returns on commercial IT investment increase with scale but decrease over time, while the returns on in-house IT increase over time.Originality/valueThis study provides a new perspective for IT productivity research by investigating the changing productivity impacts of IT investment. It also suggests that commercial IT and in-house IT should be distinguished, as they have different impacts on productivity.