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The IT Productivity Paradox

Ethan Dreyfuss, Andrew Gadson, Tyler Riding, Arthur Wang

The Problem

"You see the computer age everywhere but in the productivity statistics."
- Robert Solow, New York Book Review. July 12, 1987

In the context of the post-1973 productivity slowdown, Solow's quote famously and succintly expressed the concern that rising investments in information technology failed to alleviate the economy's declining growth, thus establishing the notion of a paradox. The surge in productivity during the tech-boom of the late 1990's brought with it a revitalized interest and optimism regarding the importance of IT, although some economists cautioned against a "magic bullet" attitude. The bubble has since burst, but the debate over the paradox is ongoing. We provide an overview of the discourse, touching upon a variety of explanations for the paradox, examining individual case studies to determine the role of IT at the firm level, and discussing the inherent difficulties in measuring a precise relationship between IT and productivity. Though the economic literature is vast and the spectrum of opinions wide, through the course of our findings we maintain the optimistic outlook, balanced against a cautionary understanding of the economy. In short, we would like to believe that "IT does matter", if only it means recognizing that traditional economic approaches which claim otherwise require revision.