Abstract
We analyze the determinants of ICT investment and the impact of information technology on productivity and efficiency on a representative sample of small and medium sized Italian firms. In order to test the most relevant theoretical predictions from the ICT literature we evaluate the impact of investment in software, hardware and telecommunications of these firms on a series of intermediate variables and on productivity. Among intermediate variables we consider the demand for skilled workers, the introduction of new products and processes and the rate of capacity utilization. Among productivity measures we include total factor productivity, the productivity of labor, and the distance from the “best practice” by using a stochastic frontier approach. Our results show that the effect of ICT investment on firm efficiency can be more clearly detected at firm level data by decomposing it into software and telecommunications investment. We find that telecommunications investment positively affects the creation of new products and processes, while software investment increases the demand for skilled workers, average labor productivity and proximity to the optimal production frontier. We interpret these results by arguing that ICT investment modifies the trade-off between scale and scope economies. While software investment increases the scale of firm operations, telecommunications investment creates a “flexibility option” easing the switch from a Fordist to a flexible network productive model in which products and processes are more frequently adapted to satisfy consumers’ taste for variety.
Similar content being viewed by others
References
Aksin, O. Z. and P. T. Harker. (1996). “Modeling a Phone Center: Analysis of a Multi-Channel Multi-Resource Processor Shared Loss System.” INSEAD Working Papers 97/57/TM, p. 38.
Aw, B. Y. and A. Hwang. (1995). “Productivity and Export Marker: A Firm Level Analysis.” Journal of Development Economics 47, 209–231.
Baily, M. N. and R. J. Gordon. (1988). “The Productivity Slowdown, Measurement Issues and the Explosion of Computer Power.” Brookings Papers in Economic Activity 2(2), 347–431.
Barua, A., C. Kriebel and T. Mukhopadhyay. (1991). “Information Technology and Business Value: An Analytic and Empirical Investigation.” University of Texas at Austin Working Paper, (May).
Battese, G. E. and T. J. Coelli. (1998). “Prediction of Firm-Level Technical Inefficiencies: With a Generalised Frontier Production Function and Panel Data.” Journal of Econometrics 7, 185–208.
Becchetti, L., L. Paganetto and D. A. Londono Bedoya. ICT Investment, Productivity and Efficiency: Evidence at Firm Level Using a Stochastic Frontier Approach, CEIS Working Paper n. 126.
Becchetti, L., M. Santoro. (2001). The determinants of small-medium firm internationalisation and its effects on productive efficiency, Weltwirtschaftliche Archiv, 2.
Bender, D. H. (1986). Financial Impact of Information Processing 3(2), 22–32.
Berndt, E. R. (1991). The Practice of Econometrics: Classic and Contemporary. Reading, MA: Addison-Wesley.
Berndt, E. R. and C. J. Morrison. (1995). “High-tech Capital Formation and Economic Performance in U.S. Manufacturing Industries: An Exploratory Analysis.” Journal of Econometrics 65, 9–43.
Berndt, E. R., C. J. Morrison and L. S. Rosenblum. (1992). “High-tech Capital Formation and Labor Composition in U.S. Manufacturing Industries: an Exploratory Analysis.” National Bureau of Economic ResearchWorking Paper No. 4010 (March).
Brynjolfsson, E. and L. Hitt. (1996). “Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending.” Management Science (April).
Brynjolfsson, E. and L. Hitt. (1995). “Information Technology as a Factor of Production: the Role of Differences among Firms.” Economics of Innovation and New Technology 3, 183–199.
Chirinko, R.S. (1993). “Business Fixed Investment Spending: Modeling Strategies, Empirical Results and Policy Implications.” Journal of Economic Literature 31, 1875–1911.
Clausen, C. and C. Koch. (1999). “The Role of Spaces and Occasions in the Transformation of Information Technologies-Lessons from the Social Shaping of IT Systems for Manufacturing in a DanishContext.” Technology Analysis and Strategic Management 11(3), 463–482.
Clerides, S.K., S. Lachand Tybout. (1998). “Is learning-by-exporting important? Micro-dynamic evidence from Colombia, Mexico and Morocco.” Quarterly Journal of Economics CXIII, August, 903–947.
Cubbin, J. S. and D. Leech. (1983). “The Effect of Shareholding Dispersion on the Degree of Control in British Companies: Theory and Measurement.” Economic Journal 93(37), 351–369.
David, P. A. (1990). “The Dynamo and the Computer and Dynamo: A Historical Perspective on the Modern Productivity Paradox.” American Economic Review Papers and Proceedings 80(2), 355–361.
Dixit, P. (1994). Investment under uncertainty.
Kiley, M. T. (1999). “The Supply of Skilled labor and Skill-Biased Technological Progress.” Economic Journal 109(458), 708–724.
La Porta, R., F. Lopez de Silanes and A. Shleifer. (1999). “Corporate Ownership around the World.” Journal of Finance 54(2), 471–517.
Leech, D. and Leahy, J. (1991). “Ownership Structure, Control Type Classifications and the Performance of Large British Companies.” Economic Journal 101, 1418–1437.
Lehr, B. and F. Lichtenberg. (1999). “Information Technology and Its Impact on Productivity: Firm-Level Evidence from Government and Private Data Sources, 1977-1993.” Canadian Journal of Economics 32(2), 335–362.
Lichtenberg, F. R. (1995). “The Output Contributions of Computer Equipment and Personal: A Firm-Level Analysis.” Economics of Innovation and New Technology3, 201–217.
Loveman, G. W. (1988). “An Assessment of the Productivity Impact of Information Technologies.” MIT Management in the 1990s, Working Paper # 88 - 05, July.
Loveman, G. W. (1994). “An Assessment of the Productivity Impact of Information Technologies.” In T. J. Allen and M. S. Scott Morton (eds.), Information Technology and the Corporation of the 1990s: Research Studies, Oxford University Press, pp. 84–110.
McConnel, J. J. and H. Servaes. (1990). “Additional Evidence on Equity Ownership and Corporate Value.” Journal of Financial Economics 27, 595–612.
Milgrom, P. and R. Roberts. (1988). The Economics of Modern Manufacturing: Products, Technology and Organization. Stanford Center for Economic Policy ResearchDiscussion Paper 136.
Morrison, C. J. and E. R. Berndt. (1991). “Assessing the Productivity of Information Technology Equipment in U.S. Manufacturing Industries.” National Bureau of Economic ResearchWorking Paper No. 3582 (January).
Nelson, R. R. (1981). “Research on Productivity Growthand Productivity Differences: Dead Ends and new Departures.” Journal of Economic Literature 29, 1029–1064.
Nickell, S. (1996). “Competition and Corporate Performance.” Journal of Political Economy 104(4), 724–746.
Nickell, S., D. Nicolitsas and N. Dryden. (1997). “What Makes Firms Perform Well?.” European Economic Review 41(3-5), 783–796.
Oliner, S. D. and D. E. Sichel. (1994). “Computers and Output Growth Revisited: How Big is the Puzzle?.” Brookings Papers on Economic Activity 2(2), 273–334.
Roach, S. S. (1991). “Services under Siege: the Restructuring Imperative.” Harvard Business Review 39(2), 82–92, (September-October).
Roach, S. S. (1989b). “America's White-Collar Productivity Dilemma.” Manufacturing Engineering August, p. 104.
Schwarts, G. and B. Clements. (1999). “Government Subsidies.” Journal of Economic Surveys 13(2), 119–147.
Scott, J. T. and N. L. Albert. (1997). “Assessing the Infrastructural Needs of a Technology-Based Service Sector: A New Approachto Technology Policy Planning.” Best Practices in Technology and Innovation Policy, Wolfgang Polt (ed.). organization for Economic Cooperation and Development, Paris.
Short, E. (1994). “Ownership, Control, Financial Structure and the Performance of Firms.” Journal of Economic Surveys 8, 203–249.
Sichel, A. (1997). The Computer Revolution: An Economic Perspective. Washington, DC: Brookings Institution Press.
Stiroh, K. J. (1998). “Computers Productivity and Input Substitution.” Economic Inquiry 36(2), 175–191.
Strassmann, P. A. (1990). The Business Value of Computers: An Executive's Guide. New Canaan, CT: Information Economics Press.
Vickers, J. (1995). “Concepts of Competition.” Oxford Economic Papers 47(1), 1–23.
Wright, D. T. and N. D. Burns. (1997). “Cellular Green-Teams in Global Network Organizations.” International Journal of Production Economics 52(3), 291–303.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Becchetti, L., Bedoya, D.a.l. & Paganetto, L. ICT Investment, Productivity and Efficiency: Evidence at Firm Level Using a Stochastic Frontier Approach. Journal of Productivity Analysis 20, 143–167 (2003). https://doi.org/10.1023/A:1025128121853
Issue Date:
DOI: https://doi.org/10.1023/A:1025128121853