Prospects for an Information-Technology-Led Productivity Surge

Information technology (IT) is enabling; without the invention of useful applications it is of little value. Some of the most valuable applications are themselves remarkable inventions. This means that advances in IT shift the invention-possibility frontier of the economy, permitting users of IT to invent new and sometimes highly valuable applications, rather than directly shifting the production-possibility frontier of the economy. IT is also general purpose technology, shared across a wide variety of uses. New advances in IT can therefore have an economy-wide impact, which will be larger or smaller according to the degree of sharing. Finally, IT has the possibility of substantial network effects. Together, these three features of IT mean that advances in it can have very substantial impacts on long-run growth. The pace of arrival of that growth varies across types of IT, however, according to the value of the enabled applications, the difficulty of the enabled invention (co-invention), the ease of sharing advances, and the mechanisms for turning network effects into a force for advance rather than for inertia. These are complex forces, but analytical studies of earlier IT advances suggest that there are two main patterns of the pace of uptake. Current IT advances connected to the Internet seem highly likely to set off both patterns as well, so that understanding the pace of aggregate value creation involves careful analysis of which pattern applies to what. So, too, does policy formation to encourage widespread value creation.