Fact of the Week: Firms Earn a 38 Percent Return From Their Investments in IT Capital

December 17, 2018

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Firms earn a 38 percent return, on average, from their investments in IT capital.

Source: Emmanuel Dhyne et al., “IT and Productivity: A Firm Level Analysis,” National Bank of Belgium, Working Paper Research No 346, October 2018.

Commentary: While it is obvious that firms can improve their productivity by investing in information technologies, it is very difficult to measure how large those returns are on average. That is due to limitations of traditional data sets. But new research by the National Bank of Belgium circumvents these issues using much more detailed data than is publicly available. It has found that the average marginal return on every dollar of IT investment is $1.38, or 38 percent, which is significantly more than previously estimated, and that differences in firms’ levels of IT investments explain 10 percent of the differences in their productivity. Moreover, the benefits of IT investment increase dramatically with scale, such that firms with more than 250 employees receive an average return of $2.55 for every additional dollar they invest in IT.