Technical Efficiency and the Role of ICT: A Comparison of Developed and Developing Countries

This paper investigates for possible effects of information and communication technology (ICT) in reducing aggregate technical inefficiency. A translog stochastic production frontier is simultaneously estimated with a technical inefficiency model across a panel of forty-two countries in 1993-2001. Strong evidence is provided for a significant impact of ICT in reducing country inefficiencies. Further evidence indicates a significantly positive ICT impact on labor productivity, while it seems that a substitute relationship between ICT and non-ICT capital exists. Based on the model's estimates, the most efficient country in the sample is the United States, followed by India, and a number of other developed countries. Overall, developed countries operate closer to the world frontier.