Productivity Breakdown of the Information Technology Industries across Countries

In this paper, we measure productivity growth of the information technology (IT) industries in fourteen OECD countries over the thirteen-year period of 1978 through 1990. The IT industries are the providers of IT capital goods, and this macro-level analysis seeks to find out how efficiently IT capital goods are produced. The basic unit of analysis employed is the Malmquist Total Factor Productivity (TFP) index. The Malmquist TFP index is next decomposed into three constituent elements accounting for different sources of productivity growth: technological progress, efficiency change, and the effects of economies of scale. The approach of measurement is based the concept of distance functions and employs the non-parametric frontier method of data envelopment analysis (DEA). Our results indicate that each country’s IT industry manifests its own particular patterns in various performance measures. Among the fourteen countries examined, ten had witnessed productivity growth in their IT industries. Overall, these IT industries are found more productive than other industries when compared with previous research. Further analyses reveal that most of productivity growth measured is due to technological progress. Efficiency change is found to exert a relatively small positive effect on the productivity growth. Moreover, the change of scale economies unfavorably affects productivity for most countries. Finally, practical implications for formulating IT policy are drawn from our results for further discussions.