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Information Technology and Productivity Changes in the Banking Industry

Authors


  • We acknowledge the helpful suggestions of Allen N. Berger, Luigi Guiso, Salvatore Rossi, Stefano Siviero, two anonymous referees and the participants at the seminars held at the Bank of Italy and the Federal Reserve Board. We are also indebted with Tim Coelli who kindly made available the econometric software FRONTIER 4.1, used in part of the estimations. Ginette Eramo and Roberto Felici provided outstanding research assistance. All the remaining errors are ours. The views expressed in this paper do not necessarily represent those of the Bank of Italy.

†Corresponding author: Giorgio Gobbi. Banca d’Italia, Economic Research Department, Via Nazionale 91, 00184 Rome, Italy. E-mail: giorgio.gobbi@bancaditalia.it

Abstract

This paper analyses the effects of investment in information technologies (IT) in the financial sector using micro-data from a panel of 600 Italian banks over the period 1989–2000. Stochastic cost and profit functions are estimated allowing for individual banks’ displacements from the best practice frontier and for non-neutral technological change. The results show that both cost and profit frontier shifts are strongly correlated with IT capital accumulation. Banks adopting IT capital-intensive techniques are also more efficient. On the whole, over the past decade IT capital-deepening contribution to total factor productivity growth of the Italian banking industry can be estimated in a range between 1.3 and 1.8 per cent per year.

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