The Effects of IT Investments and Skilled Labor on Firms’ Value Added

Torben Pedersen*, Anna Scedrova, Alina Grecu

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms’ value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself.
Original languageEnglish
Article number102479
JournalTechnovation
Volume116
Pages (from-to)11
ISSN0166-4972
DOIs
Publication statusPublished - Aug 2022

Keywords

  • IT investments
  • Skilled labor
  • Production frontier
  • Technical efficiency
  • Stochastic frontier model

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