Shu, W IT, Employment, Economic Growth 7th Pacific Asia Conference on Information Systems, 10-13 July 2003, Adelaide, South Australia Page 358 Information Technology Investment, Economic Growth, and Employment Wesley Shu Department of IDS, San Diego State University San Diego, CA 92182-8234 wesley.shu@sdsu.edu Abstract During the past thirty years, the economy of the USA, along with other industrialized countries, has experienced several noticeable trends, namely, the economic slowdown, the tremendous increase in the amount of information technology investment, and fast structural change in terms of employment. With slow economic growth and fast IT capital accumulation, the so-called “information technology (IT) productivity paradox” becomes a prevailing concept in literature. Many researchers have attempted to solve the paradox in firm-level analysis, but a macroeconomic analysis, using a nation as an analysis unit, is not common in MIS research. By considering the complex triangular relationship of the above economic trends, this paper applies econometric models and macroeconomic theories to solving the IT productivity paradox. An emphasis is placed at the impact of information technology on the structural change of employment, and at the impact of the structural change on productivity. The authors demonstrate that the structural change could unravel the IT productivity paradox and provide a prediction of the future economic growth. Keywords Information technology investment, employment, economic growth Introduction The productivity research of information technology (IT) has been perplexing MIS and economics researchers because the contribution of IT investment on the creation of business value is thus far inconclusive. Over decades, many researchers could not find positive contribution of information technology to t he productivity, for example Berndt and his colleagues have reported negative correlation between high-tech capital and labour productivity (Berndt, Morrison & Rosenblum 1992), and (Berndt & Morrison, 1995). In search of ATM's impact on productivity, Franke has reported that installation of ATMs is associated with decreased real return on equity (Franke, 1987). In addition, Loveman demonstrated no evidence of strong productivity gains from IT investments in his papers in 1988 and 1994 (Loveman 1988, Loveman 1994). The failure of positive IT productivity findings has been labeled as “IT productivity paradox,” and the idea was consummated by the famous saying of Nobel Laureate Solow, “You can see the computer age everywhere but in the productivity statistics.” (Solow, 1957) Since then, MIS research has been zeroing in on the long-lost information technology productivity with the hope of finding some good news. For example, (Barua and Lee 1996) reported positive IT productivity by employing econometric methodology. Along with their research, Brynjolfsson and Hitt's 1993 also