Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society

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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society

The Effect of IT Investment and Dynamic Efficiency Test in Manufacturing Industries

Vol.20, No.4, December , 28–49

English Version |  Korean Version
  •   (Department of International Trade, Inha University)


The previous studies have mainly focused on measuring the contribution of IT investment to the industry's productivity growth, but failed to investigate its effect on the supply price. If IT investment leads to a lower in the supply price, the industry will likely expand its global market share through the price competition. Also, it is required to confirm the attainment of optimal level of IT capital stock in order to maximize the investment efficiency. In this study, first, we compute the price elasticities with respect to IT capital investment by industries by estimating a supply relationship derived from the cost function. Then we test for the dynamic optimal condition for IT capital stock obtained by minimizing the present value of costs subject to the production function as specified in dynamic equilibrium model. An investment in IT capital would bring an increase in supply price in the labor intensive industries, while enabling the price cuts in the capital intensive industries. Overall, the IT investment might result in the supply price reductions in the Korean manufacturing industries, but insignificantly in the effectiveness. The dynamic optimal condition is rejected for feasible range of variable discount rates.

   IT investment, Supply price elasticity, Dynamic optimal condition

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