A study on the productivities of IT capital and computer labor: Firm-level evidence from Taiwan's banking industry

The current paper extends the non-neutral stochastic frontier production function-which belongs to the class of a one-step procedure as defined by Wang and Schmidt (2002) and developed by Huang and Liu (1994)-from a cross-sectional setting to a panel data modeling. Using a newly-surveyed dataset from Taiwan's commercial banks on their investments in information and communication technologies (IT), I find that IT capital and computer labor tend to exhibit higher productivities than their non-IT and non-computer counterparts, that IT capital has positive impacts on the marginal productivities of computer labor and borrowed funds, and that the mean technical efficiency is around 87.7%. Evidence is found that the total factor productivity of the banking sector grew at an average rate of 0.28% per annum, albeit fluctuating, for the past 8 years.