Assessing output performance of information technology service industries: Productivity, innovation and catch-up

Abstract

The purpose of this paper is to assess the output performance of information technology (IT) service industries of twelve Organization of Economic Cooperation and Development (OECD) countries over the years from 2000 to 2011. We use Malmquist productivity index (MPI) as the performance metric and stochastic production frontier (SPF) as the measurement approach. We then decompose MPI into two ingredient components that represent technological change for innovation capability and efficiency change for catch-up effort. It is found that the IT service industries display an impressive annual rate of 7.4% for productivity growth during the study period. The parametric decomposition of MPI unveils that almost all of the productivity growth observed is enabled by technological advance made to the production process by IT service providers while efficiency change has little effect. Moreover, each country׳s IT service industry demonstrates a distinctive pattern relating to the three measures of productivity growth, technological change, and efficiency change. This observation suggests that each country׳s IT service industry possesses certain strengths that become the sources of its competitive advantage, and there are weaknesses that could be targets for performance improvement. Based on our empirical results, we offer practical implications and identify future research topics for performance evaluation of IT service and other industries.