# **1 Introduction**

The question of whether the digital revolution has had effects on productivity has been around for a long time. Firms expect to become more efficient as a result of using more Information and Communication Technologies (ICT) and therefore, to obtain positive returns from these investments. Accordingly, ICT has been the most dynamic component of total investment in OECD countries (OECD, 2007). However, empirical studies have not found much evidence on this relationship. Moreover, this lack of evidence led to the so called Solow Paradox during the 1980s in which the computer age was everywhere but in the productivity statistics (Solow, 1987).

Recent evidence points to a reversal of this paradox as ICT is considered one of the factors that can potentially increase firm-level productivity (Syverson, 2011). According to Brynjolfsson and Hitt (1996) previous non-significant results arise from mismeasurement, lags on the effects, as well as the fact that the impact of ICT on variety, quality and other intangibles is more likely to be detected at the firm level than using more aggregated data. Using firm-level data for the U.S., these authors find that computers have significant effects over output, and that their contribution to marginal product is at least as high as the one from other capital investments. Among other studies that obtain similar results are Stiroh (2002), Oliner et al. (2008) and Jorgenson et al. (2008).

Even though some agreement has been reached regarding the positive effects of ICT on productivity, there is still little evidence on the channels or the factors that could enhance these effects. For example, as Jorgenson et al. (2008) argue, in order to successfully leverage ICT investments, firms must undergo complementary investments such as changes in business organization, human resources, workplace practices, training, etc., which Brynjolfsson et al. (2002) refer to as intangible assets. In order to explain the differences in terms of productivity growth after 1995 between the U.S. and Europe, that had previously been widely studied,<sup>1</sup> Bloom et al. (2012b) dig deeper in the analysis of this statement and conclude that these differences arise from the human resources practices of U.S. firms.

On the other hand, there is a different strand of the literature that analyzes the effects of increasing competition over productivity. As Aghion et al. (2001) argue, the idea behind these studies is that firms decide to innovate and adopt new technologies in order to temporarily escape competition from neck-andneck rivals. Oliner et al. (2008) analyze those industries that were under the most intense pressure as a result of the 2001 recession and find that they experienced the strongest productivity growth but ICT does not appear to facilitate the adjustment to competitive pressures. However, recent studies that take advantage of the surge of Chinese competition as an external shock, find evidence in favor of trade-induced technical change, innovation and thus, productivity increases. For example, Bloom et al. (2015) find that this shock

> 1See for example Van Ark et al. (2003), Haltiwanger et al. (2003), and Van Ark et al. (2008)

2