IT investments yield significant productivity growth in banking sectors across BRICS and European markets, resolving productivity paradox.
Authors
Navendu Prakash, Assistant Professor, Jindal School of Banking and Finance, O.P. Jindal Global University, Sonipat, Haryana, India
Shveta Singh, Indian Institute of Technology Delhi, New Delhi, India
Seema Sharma, Indian Institute of Technology Delhi, New Delhi, India
Summary
Information technology is a critical driver of productivity growth in modern economies. However, there has been no convincing explanation for the observed discrepancy in the literature, increasing suspicion on whether IT can improve institutional performance in contemporary banking markets.
The fallacy of productivity adds credence to Robert Solow’s dictum, “You can see the computer age everywhere except in productivity statistics”. We employ two extensive bank-level datasets of 5,794 institutions across 37 nations to estimate the total factor productivity (TFP) payoffs from IT in BRICS and European markets. A DEA-based, Malmquist productivity index quantifies TFP change and its respective components.
Findings provide evidence against the paradox as both regions experience IT-fueled productivity growth. Nevertheless, such associations vary across banking sector development, rationalizing how IT spending can explain productivity differences across nations. For BRICS banks, a significant proportion of TFP growth originates from frontier expansion instead of frontier progression, signaling a widening of technology gap. Contrastingly, IT has diminished the technology gap between European banks. Intra-country comparisons suggest that if IT-driven productivity growth is regarded as a nation’s long-term goal, industry characteristics should govern the distribution of knowledge capital.
Published in: American Business Review
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