Added value as a function of purchases of information services

Abstract

In this paper, an analysis is provided of data to evaluate the extent to which investment in information resources can be demonstrated to have direct value in greater industrial profitability. Specifically, it examines the statistical relationship between “added value” for the manufacturing industries of the country and the investment they make in purchased information services.

A review is presented of the context of evaluation of the value of information, with anecdotal evidence concerning its role. We review the theoretical background for the analysis and describe the data on which the analysis is based. The discussion of data covers the sources, the nature, and the structure of the data sets and provides a detailed listing of the data itself. We also present the results of the analysis, discuss the implications, and conclude with a commentary on potential problems due to the heterogeneous character of the data, including the analysis of a range of alternative models all of which produce the same qualitative results that were obtained in the basic regression.

We apply a Cobb‐Douglas model to value added as a function of labor, capital, purchases of information services, and purchases of other input. We do a regression analysis for that model on 50 manufacturing industries, using data from 1967, and 51 industries, using data from 1972. The theory states that, if industry is operating in an optimal manner, the marginal return from the external purchases (whether for information services or for other input), as expressed by the coefficient in the regression, should be zero. If the coefficient is positive, industry is not using enough of the external resource; if negative, industry is using too much of it.

Our results show that there is a demonstrable relationship between increased added value (and therefore profitability) and investment in information resources. Beyond that, the evidence suggests that manufacturing industry is using far less than the optimal amount of information resources than should be optimal.