ICT and technical efficiency of 15 EU countries: A stochastic frontier analysis approach

The purpose of this paper is to assess the technical efficiency of 15 countries of the European Union (EU) and to investigate factors, which influence inefficiency using Stochastic Frontier Analysis approach during the time period 1995 - 2007. A Cobb-Douglas stochastic production frontier is simultaneously estimated with a technical inefficiency model. The impact of ICT (Information and Communication Technologies) on labour productivity and the effects of ICT in reducing aggregate technical inefficiency are analyzed. Countries of EU are also compared and ranked according to their levels of efficiency. Strong evidence is provided for significantly positive ICT impact on labour productivity. Further evidence indicates positive impact of ICT and technical education in reducing country inefficiencies. The most efficient countries in the sample are France, Italy and Netherlands followed by the other EU-12 countries. The obtained results are comparable with similar study Dimelis and Papaioannou [3], but it seems that in the EU trade openness has no impact in reducing country inefficiencies.