Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1108: Do R&D and ICT Affect Total Factor Productivity Growth Differently?

Harald Edquist () and Magnus Henrekson ()
Additional contact information
Harald Edquist: Ericsson Research, Postal: Färögatan 6, SE-164 80, Stockholm, Sweden
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We analyze the effect of ICT and R&D on total factor productivity (TFP) growth across different industries in Sweden. R&D alone is significantly associated with contemporaneous TFP growth, thus exhibiting indirect effects. Although there is no significant short-run association between ICT and TFP, we find a positive association with a lag of seven to eight years. Thus, R&D affect TFP much faster than ICT-investments. We also divide ICT capital into hardware and software capital. To our knowledge, this distinction has not been made in any previous study analyzing TFP at the industry level. The results show that lagged hardware capital services growth is significantly associated with TFP growth. Hence, investments complementary to hardware are needed to reap the long-run TFP effects from reorganizing production.

Keywords: ICT; R&D; Hardware; Software; Total factor productivity; Panel data analysis

JEL-codes: L16; O33; O47

34 pages, First version: February 8, 2016. Revised: November 28, 2016. Earlier revisions: June 7, 2016.

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