The Productivity Impact of It Deployment: an Empirical Evaluation of Atm Introduction

The service industries in general and financial services in particular have been disproportionately large investors in information technology. However, critics have suggested that the productivity effects of this investment have been negligible, a serious outcome given the importance of the service sector in the modern economy. This issue is part of a wider failure of many empirical studies to find a robust empirical association between increasing inputs of information technology capital and measured output, the so-called “IT productivity paradox”. While a number of possible explanations have been advanced for this, it is clear that measurement difficulties attaching to IT inputs are particularly problematic. This paper seeks to circumvent some of these problems by an examination of the impact of a single homogeneous embodied IT application, the automatic teller machine (ATM), on productivity. It uses an unbalanced panel of UK building societies over the years 1981-93, a period corresponding to the diffusion of the ATM across the sector. The dataset is restricted to the societies’ core financial intermediation activities and hence avoids contamination from irrelevant diversifying activities. The results suggest that ATMs have strong productivity consequences. This appears inconsistent with existing evidence for an “IT paradox”. JEL Codes: D24, G21, L80, O33. *School of Economics University of Nottingham Nottingham, NG7 2RD [email protected] **Department of Economics University of Leicester Leicester, LE1 7RH [email protected] Acknowledgements: The authors are indebted to Jonathan Temple and the Editorial Board of the Bulletin, Sourafel Girma, Peter Wright and seminar participants in the Department of Economics, University of Leicester for useful comments on earlier versions of this paper and to Gavin Cameron at whose suggestion this paper was started. The normal disclaimer applies. Financial support from the Leverhulme Trust is acknowledged with gratitude.