Revisiting the productivity paradox: A semiparametric smooth coefficient approach based on evidence from Taiwan

• This paper revisits Solow productivity paradox.
• We apply the semiparametric smooth coefficient approach to implement estimations.
• Results show that IT investment positively contributes to productivity in Taiwan.
• IT has a non-neutral impact on promoting labor productivity and thus contributes to productivity.
• The non-neutral impact of IT is more relevant to larger and more IT deepened firms.

This paper explores the issue of whether investment in information technology (IT) will bring about the Solow productivity paradox. The semiparametric smooth coefficient approach is applied to implement estimations considering how the non-neutral impact of IT might affect labor productivity and thus contribute to productivity. The empirical results are obtained employing firm-level manufacturing data from Taiwan to show that IT investment has as a significantly positive influence on productivity. Specifically, IT exhibits a significant spillover impact on promoting labor productivity in general, particularly for larger and more IT deepened firms.