developing countries: Brazil and India. Their results suggest that firms which have undertaken complementary organizational investments have a higher elasticity between ICT investments and productivity. Moreover, poorer infrastructure quality and pro-worker labor regulation are both associated with lower levels of ICT capital intensity and with lower returns to ICT capital investment.

Another set of papers assume computers are direct inputs into the production function as a specific form of capital; see for example Atrostic et al (2004). The authors investigate this issue using firm-level data from three countries (US, Japan and Denmark). Their main finding is that computers are used to organize or streamline the underlying business processes.

Among all types of ICT investments impacting productivity, internet adoption is the main application investigated by the literature. Sánchez et al. (2006) assess the internet impact on productivity using Spanish firm-level data. According to the authors, there are three channels through which internet may impact productivity: (i) by significantly reducing the cost of many transactions necessary to produce and distribute goods and services; (ii) by increasing management efficiency, especially by enabling firms to manage their supply chains more effectively and to communicate more easily both within the firm and with customers and partners, and; (iii) by increasing competition, making prices more transparent, and broadening markets for buyers and sellers, which puts pressure on suppliers to adopt techniques that translate into cost savings. Their main conclusion of the paper suggests a positive impact of internet adoption on productivity yet at a decreasing rate after a certain level of usage has been reached.<sup>6</sup> Closer to the spirit of this paper, Polder et al. (2010) investigate the impact of ICT on productivity using data for more than 5,000 Dutch firms from 2002 to 2006. The authors include ICT investments as innovation inputs similar to the treatment of R&D investments in the framework proposed by Crepon et al (1998). The authors’ main hypothesis is that the channel through which ICT impacts productivity is through the innovation processes. Thus, ICT is an input to the innovation process, like other knowledge inputs such as R&D, for both technological innovations in the firm’s products and processes and non-technological innovations through the firm’s organizational practices. In other words, ICT enables higher productivity levels through innovation processes since it is an input raising innovation outputs and eventually leading to higher firm performance. The authors’ findings suggest that ICT investments and usage are important drivers of innovation outputs in manufacturing and services. Moreover, they find that the strongest productivity effects are via organizational innovation.

In summary, the literature describes four main channels through which ICT can enhance firm level productivity:

- Improving the autonomy of workers and potentially increasing their labor productivity

- Enhancing the quality of production inputs

- Enhancing organizational and management quality

- Facilitating technological and non-technological innovation

> 6 Measured at 83.5% of effective work hours using the internet.

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