Total factor productivity growth in information technology services industries: A multi-theoretical perspective

a r t i c l e i n f o Keywords: Information technology services industry Productivity and competitiveness Innovation Efficiency Malmquist index Data envelopment analysis Information technology (IT) services refer to the delivery and support of IT operations and activities in order to satisfy business requirements and to manage IT infrastructure for organizations. Considered part of knowledge-intensive business services, IT services provide an output used by other sectors and play an increasingly important role in the services-based economy. Based on the theories of production, innovation and competition , we study total factor productivity growth of IT services industries in 25 Organization of Economic Cooperation and Development (OECD) countries over the period of 1995 to 2007 using Malmquist productivity index (MPI) as the performance metric and data envelopment analysis (DEA) as the measurement methodology. We then further decompose MPI into three components that provide a full analysis: technical change (for innovation), efficiency change (for catch-up), and scale change (for demand fluctuation). These IT services industries are found to show notable productivity growth when compared with other services industries, the services sector as a whole, and the economy at large. Through a multi-theoretical lens, our breakdown analysis reveals that the IT services industry is an innovator adept at making technological progress that becomes the key driver behind observed productivity growth; efficiency change exerts a relatively small negative impact; and scale change being mainly decided by client demands impairs productivity. Implications for IT services at both country and industry levels are drawn from our findings to provide suggestions for policymaking and strategy formulation. Over the past several decades, developed countries have transformed themselves from a manufacturing-based economy to a services-based economy. In the U.S., the output of the services sector accounts for more than 75% of gross domestic product (GDP) and services industries employ a comparable proportion of the total workforce [56, 92]. Organization for Economic Cooperation and Development (OECD) countries exhibit a similar pattern with more than 70% of total value added coming from services [86]. Meanwhile, many developing countries are following the footsteps of their developed counterparts. As their economies grow, they witness an increasing share of output being contributed by the services sector. In China and India, 35% of their labor performs services-related work and the ratio continues to rise every year [78]. These figures and the trends they represent suggest that services industries are playing an increasingly important …