Information Technology Investments and Productivity Changes in the Jordanian Banking Industry between 1993-2015

Hussam-Eldin Ali Daoud

Abstract


The objectives of this study are to measure the cost and profit efficiency of Jordanian banks and evaluate the effects of ITI in increasing productivity on the banking sector in Jordan during the period 1993–2015. Frontier approaches method and micro-data from a panel of 22 Jordanian banks have been used. The results are largely confirmed with the validity of the Frontier approaches. The profit frontier model suggests that banks with higher ITI can achieve more profits. The study shows that over time, the profit efficiency of Jordanian banks has worsened and they have been achieving a lower level of profit for any given level of output. The results also indicate that large banks are more cost efficient than smaller ones. Conversely, small banks are shown to be more profit-efficient than large ones. The study indicates that the average contribution of IT capital to TFP growth through cost and profit functions is as large as 0.5% and 1.1% per year, respectively. However, the level of ITI in Jordanian banks does have a significant impact on banks’ costs, and that the technological change has occurred through technical progress. Therefore, Jordanian banks have, over time, been able to produce a given output at lower levels of cost. Jordanian banks should increase their financial allocations for IT investments and should use the latest electronic devices to facilitate the use of banking services.


Keywords


Information technology, productivity, profit and cost frontier, Jordanian banking sector

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