The effect of hard and soft information and communication technologies investment on manufacturing business performance in Greece – A preliminary econometric study

Abstract

This paper presents the results of the first empirical investigation of the effect of information and communication technologies (ICT) investment on business performance in Greece. It investigates the effect of both ‘hard’ ICT investment (in ICT hardware, software and networks) and ‘soft’ ICT investment (in ICT human resources, skills and organization) on firm output. It is based on data from big Greek industrial firms, which have been collected via a questionnaire-based survey conducted in cooperation with the Federation of Greek Industries (FGI). Using these data, econometric models of output have been constructed based on the microeconomic production theory. Our analysis shows that the Cobb–Douglas production function can adequately describe the output, as compared to the more general transcendental production function. Using this type of production function it has been found that hard ICT investment in Greece makes a positive and statistically significant contribution to firm output; however its output elasticity is lower than the one of the non-computer capital and much lower than the one of the labour. Also, from the dimensions-measures of the soft ICT investment we examined, it has been found that the existence of a separate ICT department has a positive and statistically significant effect on firm output, which is of considerable magnitude of about two thirds of the effect of the hard ICT investment. The possibility of an effect of firm size on the structural stability of the econometric models we employed was also investigated; it was found that for firms with total sales above about €20 million the structure of the models is reasonably stable, and therefore the conclusions drawn from them are valid, at least for the range of firm sizes that our data cover.