Information technology use and economic growth

Abstract Economic growth has been slow in the Information Age despite rapid progress in information and communication technology (ICT). The root cause, as pointed out in (David (1990, The American Economic Review, 80, 355–361), is that co-invention of useful applications lags behind invention of ICT. This paper asks why that lag has been so long, and why it has persisted through so much innovation. We look at the history of ICT from the perspective of enabled uses: what applications were enabled when and by which advances? We then look at the analytics of co-invention itself, drawing on statistical as well as historical approaches. Organizational adjustment costs (OACs) in co-invention are central determinants of the gap between best and average practices in ICT use. OAC comparative statics explain a wide range of phenomena, from the spread out of measures of firm success to the stunning growth of new purely digital firms in a few areas. This means that co-invention that preserves existing firm assets has been slow. Co-invention that replaces existing firms with new ones has been rare. To change this going forward requires improvements to co-invention, not improvements to ICT itself.