This project explored various channels how advances in information and communication technologies (ICT) affect the production potentials and the innovation capacities of enterprises. The main focus was to assess which firm characteristics and strategies are particularly suitable to enhance the productivity contributions of ICT investment. .

Similar to the wide and rapid diffusion of electricity and the steam engine, ICT are increasingly acknowledged as a General Purpose Technology (GPT) that penetrates all sectors of the economy and entails large potentials of technological improvements and innovation complementarities within firms. In this regard, the diffusion of ICT as a GPT is of a high overall economic importance since it may contribute to a substantial rise of productivity in various industries and thereby increase the growth potentials of the economy as a whole.

These productivity impacts may unfold in three ways. First, the rapid technological advances within the ICT-producing sector contributes to overall productivity increases. This effect is the higher the bigger the size of the ICT-producing sector is within an economy. Second, because of the strong competitive pressure within the ICT producing sector, users of ICT goods are benefiting from the technological advances through increasing quality and dropping prices. The consequent capital deepening, i.e. the increase of the average capital endowment of workplaces, entails an increase of labour productivity within the ICT using industries. Third, the use of ICT facilitates the development and introduction of complementary innovations in other parts of the economy. For example, new technologies enable firms to re-engineer their internal processes and organization structures, or even to develop completely new products and services. These co-inventions or spill-overs of ICT may affect the total factor productivity, i.e. they raise not only the productivity of labour but also of potentially all other production inputs as well.

In the course of the project, productivity and spillover effects of ICT use were analysed employing large and representative firm-level data for Germany. Methodological issues of adequate productivity measurement formed a major aspect. The results show that ignoring the role of unobservable firm characteristics (such as management quality) may lead to a substantial overestimation of productivity impacts of ICT. These issues can be addressed by using advanced panel data econometrics.

Moreover, the results from the project highlight that firms dispose of varying potentials to benefit from ICT use. Innovation activities are particularly important in this context. Firms that have introduced innovations already at the beginning of the observed period between 1993 and 1999 exhibit an especially high ICT productivity. Moreover, the investigations show that firms use ICT not only for introducing new products and new services, but also for innovative workplace practices. In this context, training programmes turn out to be an essential prerequisite – in particular for employees with a high educational background – for a high ICT productivity.

Selected Publications

Articles in Refereed Journals

Hempell, Thomas (2005), Does Experience Matter? Innovations and the Productivity of ICT in German Services, Economics of Innovation and New Technology 14(4), pp. 277-303. Download

Monographs, Contributions to Edited Volumes

Hempell, Thomas (2006), Computers and Productivity - How Firms Make a General Purpose Technology Work, Economic Studies, LLL:citation.label.volume 33, physica, Heidelberg.


Landesstiftung Baden-Württemberg GmbH , Stuttgart , DE

Project duration

01.01.2002 - 31.08.2004

Project members

Prof. Dr. Werner Smolny (Coordinator)
Dr. Thomas Hempell


Digital Economy