ICT Investment, Productivity and Efficiency: Evidence at Firm Level Using a Stochastic Frontier Approach

35 Pages Posted: 1 Aug 2003

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Luigi Paganetto

Tor Vergata Economics Foundation

David Andres Londono Bedoya

Universidad Tecnologica de Bolivar

Date Written: August 2003

Abstract

We analyse 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 utilisation. Among productivity measures we include total factor productivity, the productivity of labour, 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 labour 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.

Suggested Citation

Becchetti, Leonardo and Paganetto, Luigi and Londono Bedoya, David Andres, ICT Investment, Productivity and Efficiency: Evidence at Firm Level Using a Stochastic Frontier Approach (August 2003). CEIS Tor Vergata - Research Paper Series No. 29. Available at SSRN: https://ssrn.com/abstract=428560 or http://dx.doi.org/10.2139/ssrn.428560

Leonardo Becchetti (Contact Author)

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Luigi Paganetto

Tor Vergata Economics Foundation ( email )

Via Columbia n.2
Rome, Rome 00100
Italy
0039 0672595533 (Phone)

David Andres Londono Bedoya

Universidad Tecnologica de Bolivar ( email )

Colombia

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