This paper analyses the effects of investment in information technologies (IT) in the financial sector using micro-data from a panel of 600 Italian banks over the period 1989-2000. Stochastic cost and profit functions are estimated allowing for individual banks' displacements from the best practice frontier and for non-neutral technological change. The results show that both cost and profit frontier shifts are strongly correlated with IT capital accumulation. Banks adopting IT capital-intensive techniques are also more efficient. On the whole, over the past decade IT capital-deepening contribution to total factor productivity growth of the Italian banking industry can be estimated in a range between 1.3 and 1.8 per cent per year. Copyright 2007 The Authors Journal compilation 2007 Banca Monte dei Paschi di Siena SpA.
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Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.
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