The Impact of Information Technology on Total Factor Productivity

Abstract

This paper employs the manufacturing firm-level data of Taiwan to explore the issue of whether information technology investment brings about the Solow productivity paradox. In order to consider the improvement of product quality caused by information technology investment, a hedonic price index is used to deflate the information technology variable. Besides the general specification of Cobb-Douglas production function, this paper considers the impact of information technology on total factor productivity, capital and labor productivity through substitution by applying a non-neutral production function.