Impact Of Information Technology On Output Growth Of Manufacturing Firms In Kenya

Abstract

Manufacturing firms strive to improve their output growth by using modern technology. It is evidenced that investments in modern technology have a positive link with firm performance and output growth. Since investments are subject to diminishing returns, there is need for monitoring and replacing them when necessary, or upgrading them. The connection between IT investment and output growth in the manufacturing sector remains unclear. This study aimed to investigate whether technological investments affect output growth of manufacturing firms in Kenya. The specific objectives included: to assess the type of information technologies adopted by manufacturing firms in Kenya; to evaluate the marginal impact of a shilling’s information technology investment on manufacturing industry’s output growth; and to evaluate the impact of information technology training on output growth of production firms in Kenya. The research was guided by the following theories: innovation theory of profit; risk and uncertainty bearing theory of profit; and diffusion of innovation theory. Using data from the Kenya National Bureau of Statistics and World Bank for the period from 2011 to 2018, the study estimated how IT investments impact industry output growth in Kenya using ordinary least squares method. The study findings revealed that manufacturing firms in Kenya have adopted several information technologies including computer-aided designs, computer-aided engineering, computer-aided manufacturing, resource planning for manufacturing, and computer-integrated development. Information technology investment had a positive and significant effect on industry output growth. Manufacturing firms should consider increasing their budgetary allocation towards acquisition of modern information technologies to further boost their output growth. The government should lower the cost of information technology access to make manufacturing firms use more of it for increased output growth.