Productivity in information service industries: A panel analysis of japanese firms

Abstract

We examine factors determining productivity of information-technology service activities at firm level, using most comprehensive data of information service industries in Japan. We focus on the degree of modularisation and resulting outsourcing and economies/diseconomies of scale in software development, and changes. We find that outsourcing has persistent negative effects on total factor productivity, suggesting not only productivity-enhancing modularisation is not fully utilised but also productivityhindering remnants of traditional main-contractor-subcontractor relations still prevail in Japanese information service industries. We also find diseconomies of scale in software development, suggesting less efficient communication among development team members.