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Technological diffusion, banking efficiency and Solow's paradox: A frontier-based parametric and non-parametric analysis

Navendu Prakash, Shveta Singh and Seema Sharma

Structural Change and Economic Dynamics, 2021, vol. 58, issue C, 534-551

Abstract: Technological innovation is critical to secure long-term productivity benefits in any section of society. Investment in ICT is often seen as an imperative for improving banking efficiency. However, the unexpected failure of ICT in enhancing efficiency has unearthed the dilemma observed by Solow, who remarked, “You can see the computer age everywhere, except in productivity statistics”. We analyze the impact of IT investments on the technical and cost efficiency of 72 Indian commercial banks across 2008–2019 using stochastic frontier analysis with exogeneous inefficiency effects and a slacks-based measure of data envelopment analysis. We conclude that the sector has been able to leverage IT investments towards improving efficiency, thereby invalidating the claims of a productivity paradox and providing evidence that supports the birth of a new economy where IT can be viewed as a dynamic force that brings about changes in organizational design, allowing banks to achieve better efficiency levels.

Keywords: Technology diffusion; Stochastic frontier analysis; Information technology; Data envelopment analysis; Indian banks (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.strueco.2021.07.007

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