The Diffusion of Information Technology Capital: An Industry Analysis

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Information Technology (IT) capital currently represents 7% oftotal capital stock in the U.S. and accounts for a rapidlygrowing share of capital expenditures, making it one of the mostimportant innovations of recent times. Surprisingly, fewtheoretical or empirical analyses have focussed on the diffusionof IT and in particular, quantified its growth. Given thesignificant role of IT as a capital input in every sector of theeconomy, it is important to analyze these growth trends. This project studies the demand for IT capital for the period1972.1987 at both the industry and the aggregate economy levels. While much of the literature refers to the growth of IT in thecontext of the diffusion of innovation and S.curve behavior, itis argued in this project that the declining costs of computingwill have a significant impact on the pattern of diffusion. Theresearcher develops economic models of the demand for IT thatintegrate these two factors. The models also examine theinfluence of other factors, including the cost of labor andgeneral business conditions on the demand for IT. The quality ofthe models, and their form and parameters are determined throughan econometric analysis of data on the stocks and flows of IT atthe industry and aggregate economy levels. The research examinesthe extent to which the growth of IT stock can be explained bythe effects of the innovation diffusion versus the price effects. The Principal Investigator looks at the relationships between theaggregate and the industry demand functions as well as inter.industry differences.