Performance Evaluation of Production of IT Capital Goods across OECD Countries: A Stochastic Frontier Approach to Malmquist Index

Abstract

As integrated supply chains, ubiquitous computing, and mobile applications have become the backbone for conducting business nowadays, the economic significance of information technology (IT) is self-evident. In this paper, we study IT value from an unconventional perspective: the production of IT capital goods. Using the true fixed-effects model of translog stochastic production frontier, we evaluate the performance of IT industries for 19 Organization of Economic Cooperation and Development (OECD) countries over the period of 2000 to 2009. We examine the productivity growth of these IT industries based on the Malmquist index and further analyze these productivity patterns through technological change and efficiency change. Overall, these IT industries are found to enjoy greater productivity growth than other industries when compared with previous findings. Our results show that technological progress is the main driver of productivity growth for the IT industry, efficiency change has a negligible effect, and each country`s IT industry exhibits a distinctive performance profile. Policy implications are drawn from our results and related issues are identified for future research. We also highlight the advance of research methodology used in the study that can account for measurement errors, random fluctuations, and unobserved heterogeneity commonly encountered in empirical information systems research.