Stefan Schweikl, Robert Obermaier | Management Review Quarterly
New developments in the fields of artificial intelligence or robotics are receiving considerable attention from businesses, as they promise astonishing gains in process efficiency—sparking a surge of corporate investments in new, digital technologies. Yet, firms did not become per se more productive, as labor productivity growth in various industrial nations has decelerated in recent years. The fact that the adoption of innovative technologies is not accompanied by productivity increases has already been observed during the dawn of the computer age and became known as Solow’s Paradox. Thus, this paper takes stock of what is known about the Solow Paradox, before incorporating the findings into the debate of the current productivity slowdown. Based on an in-depth review of 86 empirical studies at the firm level, this paper uncovers various reasons for the emergence of the Solow Paradox, debates its following reversal marked by the occurrence of excess returns and deduces a model of factors influencing the returns on IT investments. Based on these insights, four overarching explanations of the modern productivity paradox namely adjustment delays, measurement issues, exaggerated expectations and mismanagement are discussed, whereby mismanagement emerges as a currently neglected, but focal issue.