The Solow Paradox and the Productive Use of Information and Communication Technology
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Publication date: 2016-02-29
GNPJE 2016;281(1):29-53
The paper presents the main arguments that explain the causes for a productivity paradox formulated by American economist Robert M. Solow in 1987 in connection with the rapid development of information and communication technology. The paper discusses the conditions that need to be met to support the growth of productivity related to the use of ICT, particularly in developing countries. The analysis is based on a literature review focusing on the Solow paradox. It argues that there are two prerequisites to “see” a positive impact of ICT on productivity statistics: the time necessary for the completion of learning-by-doing processes, and the existence of ICT complementarities. ICT complementarities usually include changes in workplace organization and business processes, coupled with investment in human capital, foreign direct investment and the creation of an entrepreneurship-friendly institutional environment. The main conclusion from the analysis - in the context of how developing countries take advantage of ICT investment to accelerate the convergence process – is that special attention should be paid to ICT complementarities. They are a key determinant of a productive use of ICT. Research studies reviewed in the article show that it is not enough to simply invest in ICT capital stock (through investment in hardware and software) in order to materialize the benefits of ICT. Complementary investments are also necessary, mainly in human capital, changes in workplace organization at the enterprise level, and investment in intangible assets.
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