Information technology and its changing roles to economic growth and productivity in Australia

•IT capital had a significant impact on output and productivity in the 1990s.•Contribution of IT-capital has slowed down in 2000s.•IT capital deepening Granger-causes technical progress and labour productivity.•There is a need to improve IT-capital productivity.

In this paper we describe our investigation of the role of investment in information technology (IT) on economic output and productivity in Australia over a period of about four decades. The framework used in this paper is the aggregate production function, where IT capital is considered as a separate input of production along with non-IT capital and labour. The empirical results from the study indicate the evidence of robust technical progress in the Australian economy in the 1990s. IT capital had a significant impact on output, labour productivity and technical progress in the 1990s. In recent years, however, the contribution of IT capital on output and labour productivity has slowed down. Regaining the IT capital productivity therefore remains as a key challenge for Australia, especially in the context of greater IT investment in the future.