Assessing the productivity of information technology equipment in US manufacturing industries

We assess the cost-reducing impacts of increasing stocks of ''high-tech'' equipment (O capital). Our empirical analysis is based on a dynamic production theory model and annual data for two-digit U.S. manufacturing industries (1952-1991). We find evidence of overinvestment in O capital in the mid to late 1980s, following a period of strong investment incentives in the late 1970s. By the end of the 1980s, however, the returns to investment and falling prices for O capital more than justified the high investment levels in nondurable-goods industries, and the benefit-cost ratio was also increasing for durable-goods industries. The underlying substitution patterns suggest that high-tech capital expansion increases demand for most capital and noncapital inputs overall, but saves on materials inputs. Ln durables industries, however, both energy and ''other'' capital appear somewhat substitutable with O capital, and in nondurables industries increasing high-tech intensity may be a factor underlying stagnating labor demand.