Three essays on the economic impacts of information technology on efficiency and productivity

This dissertation conducts on economic analysis of the impact of IT on efficiency and productivity. It consists of three related chapters focused on the interplay between IT and competition, the role of IT-related spillovers on productivity in the long-run, and the productivity impact of IT outsourcing practice.;In chapter 2, we analyze the impact of IT on the technical efficiency of firms in the context of their competitive settings. Most studies have examined the impact of IT on firm productivity. Technical efficiency is an alternative measure to productivity. Our findings indicate that there are large variations in efficiency levels across industries. To model the degree of competition in an industry, we utilize price-cost margin as an inverse measure of competition. We find that in more competitive environments, firms tend to deploy IT more intensively and use it more efficiently. In less competitive environments, firms are less efficient while, as expected, IT enables efficiency gains. Overall, our results suggest that competition and IT are significant determinants of efficiency gains, and provide insight into how competition affects the returns to IT investment.;In chapter 3, we examine the IT-related spillover effects on firm-level productivity improvements over a long-term horizon. Prior research has largely focused on the contemporaneous impacts of IT investments. As a result, we do not fully understand how IT investments made today are associated with continuous productivity improvements over time. Our objective is to develop an in-depth understanding of the nature of these long-run impacts focusing on the duration and magnitude of IT-related spillover impacts over a long-term horizon. In this paper, we examine whether firms receive incremental benefits from knowledge spillovers related to IT, and whether these spillovers lead to more persistent returns. We focus on the spillovers that accrue to a firm from its trading partners including customers, suppliers and services firms. We use endogenous growth theory to model the impact of spillovers on long-run productivity. We test our model on firm-level data from the manufacturing, services, transportation and trade sectors. We find that the results vary significantly with relative IT intensity. That is, for firms with high IT intensity, the impact of IT-related spillovers persist over time, leading to larger returns over time. However, the impact of IT-related spillovers do not persist in low IT intensity firms. We also find that the adjustment period to return to economic equilibrium from the time an IT investment is made is longer in high IT intensity firms. Overall, our results shed light on the existence of IT-related knowledge spillovers and on their important role in shaping higher IT returns in the long-run. We believe that our results also help explain the findings of excess returns to IT investment in the IT productivity literature.;In chapter 4, we examine the impact of IT outsourcing on the productivity of firms that choose this mode of services delivery. We do so by analyzing the demand and supply sides of the IT outsourcing market. On the demand side, we derive conditions under which firms outsource. Clearly, firms are more likely to outsource when vendors provide comparative production cost advantages. Our analysis of the supply side predicts that by serving multiple clients, a vendor's superior ability to benefit from economies of scale and from learning spillovers leads to productivity enhancements for firms that outsource. We test our theoretical predictions using endogenous switching regression which is appropriate when there is potential endogeneity between sourcing decisions and firm productivity. Our empirical results support our theoretical predictions. We find that the productivity gains of firms that outsource are higher than those that do not. We also find that firms will not derive additional productivity improvements by switching from their sourcing mode to the alternative mode of delivery. Our findings are consistent with our theoretical model suggesting that a vendor's production cost advantage is a major driver and that innovation spillovers and economies of scale of vendors are major sources of productivity improvements.;Overall, this thesis helps develop a deeper understanding of the ways IT impacts efficiency and productivity and addresses unanswered questions on the economic impacts of IT.