Industry Level Information Technology Spillover : Direct Effects and Indirect Effects

Abstract

We empirically investigate the impact of Information Technology (IT) investment in supplier industries to downstream industries? value added, namely the effects of IT spillover. There are two effects of IT spillover, which are direct effect and indirect effect. We model the IT spillover through aggregating suppliers? IT capital stock weighted by the inter-transaction volume. Using data of 74 U.S. manufacturing industries in four-digit NAICS code level, we find the general positive direct effect of IT hardware spillover and negative direct effect of IT software spillover. In addition, both direct and indirect effects of IT spillover vary among different manufacturing industries in our dataset. We also find that IT-intensive industries benefit from IT spillover more than do non-IT-intensive industries due to their different absorptive capability. Lastly, we find that external environmental factors, such as economic crisis or Internet bubble burst, reduce IT spillover effects.