Information Technology and Growth (updated)

The goal of this paper is to provide new evidence on the substitution of IT for other types of capital and labor inputs in the U.S. economy. For this purpose we extend the pioneering analysis of Stephen Oliner and Daniel Sichel (1994) and our own earlier work, reported in Dale Jorgenson and Kevin Stiroh (1995). We focus on the massive substitution towards computers in both business and household sectors as the price of computers fell dramatically in the 1980s and 1990s. We show that, in response, profit-maximizing firms and utility-maximizing consumers substituted IT for other goods and services, replacing other types of equipment and economizing on the use of labor effort.