Analysis of Economic and Mathematical Models of Information and Communication Technology Effect on the Production Output: Does the Solow Paradox Exist?

TitleAnalysis of Economic and Mathematical Models of Information and Communication Technology Effect on the Production Output: Does the Solow Paradox Exist?
Publication TypeJournal Article
Year of Publication2019
AuthorsHarkushenko, OM, Knjazev, SI
Short TitleNauka innov.
SectionGeneral Problems of the Modern Research and Innovation Policy
Introduction. The development of information and communication technology (ICT) and digitalization of the society, which have been spreading around the world as a result of swiftly growing smart industry (Industry 4.0) are usually associated with an increase in production output and labour productivity and a reduction in manufacture and customization costs.
Problem Statement. According to the Solow Paradox (1987), investments in computer equipment and technology are not accounted in economic statistics on increasing labor productivity as a result of computerization, which undermines the conception of favorable impact of electronics on production output and labor productivity.
Purpose. To develop requirements for improving the economic and mathematical models for measuring the ICT effect on production output, based on the analysis of the advantages and shortcomings of the existing models of the computer technology and software effect on production output and the peculiarities of ICT development.
Materials and Methods. The historical method for analyzing the development of models of ICT effect on production output, the comparative analysis of existing economic and mathematical models to determine the approaches to the selection of factors influencing the performance indicators, and the analysis of arrays of the initial statistic data.
Results. Analyzed models and the course of their development have shown a favorable impact of ICT on production output and labor productivity. The Solow Paradox is explained by the fact that the share of computer equipment and technology in corporate fixed assets in the late 1980s — the early 1990s was insignificant, as well as by the lack of reliable statistics at that time and an imperfect methodology for its analysis. With the development of statistics as science and with the spread of computer equipment and technology, the Solow Paradox has been rejected in new models of ICT effect on production output.
Conclusions. A set of models that take into consideration the institutional features of the national economic development, the life cycle stages, and the degree of implementation of digital technologies shall be used in order to clarify the ICT effect on production output and labor productivity. The models of ICT effect on production output need to be further elaborated for taking into consideration the specifics of development of cutting-edge information technologies.
Keywordsdigitalization, information and communication technology (ICT), modelling, production, the Solow Paradox
1. Garkushenko, O. M. (2018). Information and communication technologies in the era of the smart industry development: problems of definition and conditions of development. Econ. promisl., 2(82), 50–75 [in Russian].
2. Vishnevsky, V. P., Kniaziev, S. I. (2018). How to increase the readiness of Ukraine's industry to smart transformations. Nauka innov., 14(4), 55-69 [in Ukrainian].
3. Solow, R. (1987, 12 July). We’d better watch out. The New York Times Book Review, Vol. 36.
4. OECD Observer ministerial roundtable: Digital economy. OECD Observer. 2016. 
(Last accessed: 15.12.2018).
5. Measuring the Digital Economy: Staff Report. International Monetary Fund. 2018, 28 February. 
(Last accessed: 15.12.2018).
6. Garkushenko, O. M. (2018, August). Digital economy: problems of terminology. Poster session presented at the International science and practical conference on State and prospects of development of financial and economic potential of modern enterprises, Dnipro [in Ukrainian].
7. Li, J. (2014, June). Protecting the Tax Base in the Digital Economy. UN  Papers on Selected Topics in Protecting the Tax Base of Developing Countries. Paper Nо. 9. 49 p.
8. Solow, R. A. (1956). Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65-94.
9. Solow, R. A. (1957). Technical Change and the Aggregate Production Function. The Review of Economics and Statistics, 39(3), 312-320.
10. Cohen, S. S., Zysman, J. (1987). Manufacturing Matters: Myth of the Post-Industrial Economy. New York:  Council on Foreign Relation/Basic Books.
11. Foster, R. (1987). Innovation: The attacker’s advantage. Moskow: Progress [in Russian]. 
12. Triplett, J. E. (1999, April). The Solow productivity paradox: what do computers do to productivity? Canadian Journal of Economics/ Revue canadienne d'Economique, 32(2), 309-320.
13. Jorgenson, D. W., Stiroh, K. J. (2000, May). Raising the Speed Limit: U.S. Economic Growth in the Information Age. Brookings Papers on Economic Activity, No. 1, 188.
14. Jorgenson, D. W., Ho, M. S., Stiroh, K. J. (2003). Lessons from the U.S. Resurgence. Journal of Policy Modeling, 25(5), 453-470.
15. Moore, G.E. (2003, February). No Exponential is Forever: But “Forever” Can Be Delayed! Poster session presented at the International Solid-State Circuits Conference (ISSCC), San Francisco, USA. 
16. Platonov, V. V. (2007). «Paradox Solow" twenty years later or on the study of the impact of innovations in information technology on productivity growth. Finansyi i biznes, 3, 28–39 [in Russian].
17. Madykh, A. A., Okhten, О. О. (2018). Modeling the transformation of the impact of production factors on the economy in the process of smart industry formation. Econ. promisl., 4(84), 26-41 [in Russian].
18. Brynjolfsson, E., Hitt, L. M. (2003). Computing productivity: firm-level evidence. Review of economics and statistics, 85(4), 793-808.
19. Herrero, A. G., Xu, J. (2018, 17 May). How big is China’s digital economy? Bruegel Working Paper, Issue 04. 14 p. 
(Last accessed: 10.09.2018).