The business value of information technology as measured by technical efficiency: Evidence from country-level data

The value of information technology (IT) in a business production process has long been a debatable issue. Explanation of the so-called “productivity paradox” has been one of the central topics in this arena. Much work has focused on firm-level analyses. This paper investigates IT contribution at a country level, using production theory in microeconomics. It negates the relationship between IT value and productivity based on grouping of countries, when the individual analytical method is applied and technical efficiency is used as the performance criterion. Findings obtained by applying stochastic production frontiers to a comprehensive country-level panel data set suggest that the IT contributions, as determined by the increase or decrease in the technical efficiency, to individual countries differ in magnitude from a production frontier to another, but are robust. It also shows that IT spending does not necessarily improve technical efficiencies of individual countries, regardless of whether they are developed or developing countries, and that given technological changes, the so-called productivity paradox may exist in a country, no matter whether it is a developed or developing nation. Finally, the significant implications of the findings are presented.