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Computers and Productivity: How Firms Make a General Purpose Technology Work

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Information and communication technologies (ICTs) create potentials for considerable productivity gains and for higher economic growth. However, ICTs also pose varied challenges to firms in order to benefit from these potentials. Highlighting the importance of innovations, firm-sponsored training, and recruitment of high-skilled workers, this monograph analyses why and to what extent firms differ in their capabilities to make ICT work productively. The work also comprises a detailed discussion of economic theory concerning ICT use and complementary firm strategies. In addition it provides a comprehensive treatment of various methodological issues concerning the measurement of firm-level productivity in econometric analyses.

Most of the studies of this book originate from the research project “ICT as a General Purpose Technology” commissioned by the Landesstiftung Baden-W¨urttemberg foundation, a project that was initiated to quantify the productivity effects resulting from computer use for firms in Germany. I am indebted to my supervisor Werner Smolny for his continuous advice and for supporting my academic work. Moreover, I am grateful to Bernd Fitzenberger and R¨udiger Kiesel for their critical and constructive comments. I also thank Manuel Arellano whose excellent lectures on panel econometrics at Pompeu Fabra University in Barcelona helped me a lot in acquiring the methodological tools necessary for my empirical work.

ICTs comprise a large variety of items. These include not only products and services of information technologies (e.g. mainframes, personal computers, software, ICT maintenance services) but also telecommunication equipment and products, such as telephones, fax machines, telecommunication infrastructure and services as well as services by Internet providers. In the remainder, I sometimes refer to ‘computers and the Internet’ as the most popular applications of ICT. This alternation in denomination, however, is not meant as defining a subgroup of ICT but rather as an alternation in wording that is employed synonymously for the very broad notion of ICT.

There are no disagreements about the impressive technological advances that have been achieved in the worldwide production of ICTs. The computing power of microprocessors has been doubling about every 18 months since the 1950s (a development that is widely known as Moore’s Law). And the more recent inventions from the past three decades like personal computers, notebooks, CD and DVD players, mobile phones, or the Internet are just a few examples of products and services that would have been unthinkable to be developed without the rapid technological progress in the ICT sector.
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