Industry level supplier-driven IT spillovers

Zhuo Cheng, Barrie R. Nault

Research output: Journal article publicationJournal articleAcademic researchpeer-review

62 Citations (Scopus)

Abstract

We model and estimate the effects to downstream productivity from information technology (IT) investments made upstream. Specifically, we examine how an industry's productivity is affected by the IT capital stock of its suppliers. These supplier-driven IT spillovers occur because, due to competition in the supplying industry, quality benefits from suppliers' IT investments can pass downstream. If the output deflators of supplying industries (consequently the intermediate input deflator of the using industries) do not capture the quality improvement from IT, then the output productivity of the supplying industries is mismeasured or misassigned. We develop and empirically test a model capturing these supplier-driven effects using data on 85 manufacturing industries at the three-digit SIC code level. We find that for a 10.5% increase in suppliers' IT capital, the suppliers' output increases by 0.63%-0.70%, which is more than covering the cost of the increase in suppliers' IT capital. In addition, this increase in suppliers' IT capital increases the average downstream industry's output by $66-$72 million, thereby confirming substantial supplier-driven IT spillovers downstream. We also infer the magnitude of the measurement error of the price deflator of the intermediate input resulting from the failure to account for IT-related quality improvement, finding that the measured price deflator overestimates the true deflator by approximately 30% at the mean level of IT capital.
Original languageEnglish
Pages (from-to)1199-1216
Number of pages18
JournalManagement Science
Volume53
Issue number8
DOIs
Publication statusPublished - 1 Aug 2007

Keywords

  • Input-output tables
  • Interorganizational systems (IOSs)
  • IT contribution
  • IT investment
  • IT quality
  • Price deflator
  • Production function framework
  • Value of IT

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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