VIVES Briefings, 2018, 6: How (much) do computers contribute to welfare?

Ever since its wide introduction in our society, Information Technology (IT) has continuously reshaped the way in which businesses operate. In their recent paper The Return on Information Technology: Who Benefits Most?, Emmanuel Dhyne of the National Bank of Belgium, together with Jozef Konings, Jeroen Van den bosch and Stijn Vanormelingen of VIVES, KU Leuven investigated the returns on IT investments. Starting from a dataset that covers all purchases of IT equipment for nearly all Belgian firms…

Ever since its wide introduction in our society, Information Technology (IT) has continuously reshaped the way in which businesses operate. In their recent paper The Return on Information Technology: Who Benefits Most?, Emmanuel Dhyne of the National Bank of Belgium, together with Jozef Konings, Jeroen Van den bosch and Stijn Vanormelingen of VIVES, KU Leuven investigated the returns on IT investments. Starting from a dataset that covers all purchases of IT equipment for nearly all Belgian firms (2002-2013), the researchers
found that, on average, a firm that invests an additional euro in IT, increases its added value with 1.38 euro. This return varies across industries and between small and large firms. Returns on IT investments increase with firm size. The degree to which firms invest in IT even explains up to 10% of the productivity differences between firms. At the macro level, the authors found out why the gains of IT did not show up in the national accounts of Belgium. This turns out to be a result of underinvestment in IT. Moreover, after the Great Recession, firms who would benefit substantially from investing in IT did not do so, which resulted in a lower contribution of IT to productivity growth.
On a more positive note, policies that encourage IT investment for selected types of firms and sectors might induce a substantial productivity rise.