Research Note: Determinants of Country-Level Investment in Information Technology

Investment in information technology (IT) is an important driver of economic growth and productivity in the United States and other developed countries, but as yet it is not shown to be a significant driver in developing countries. Previous research suggests that IT investment and complementary assets are insufficient for developing countries to realize economic benefits. This research note examines the factors that influence IT investment in developed and developing countries to determine how greater investment might be stimulated to achieve productivity gains. We use the flexible accelerator model of investment and find that it is a good predictor of country-level IT investment. We also extend the model to include country-level variables, and find a negative relationship between IT investment and interest rates, but positive and significant relationships between investment, openness to trade, and telecommunications infrastructure. When we include interaction effects between national income levels and country variables, we find that the impacts of interest rates, size of the financial sector, teledensity, and intellectual property rights are strongest in shaping IT investment for developed countries. In contrast, we find that the impact of openness to trade is greater for developing countries, as is the size of government and education levels.