Causal evidence on the “productivity paradox” and implications for managers

The relationship between Information and Communication Technology (ICT) and productivity has been widely discussed in the past two decades, but little understood. Since the early 1970s productivity growth in almost all of the world economies has slowed, while expenditure on ICT has risen. This raises the so‐called “productivity paradox” with some economists concluding that there is no relationship between spending on ICT and productivity. The study examines this relationship with time series tools in an attempt to identify whether there is a causal relationship in either direction, or whether there is a third factor affecting both ICT growth and productivity growth. Using the Granger causality procedure applied to Portuguese data from the period 1980‐2000, the paper attempts to understand better the paradox in order to recommend to managers how they might make better‐informed and more effective decisions about ICT investments.