Investigation of Determinants of Total Factor Productivity: An Analysis of the Impact of Investments in Telecoms on Economic Growth in Productivity in the Context of Transition Economies

The limited resources of Transition Economies (TE) accentuate the need for formulating effective and efficient policies for investments in Information and Communication Technologies (ICT). However, the empirical evidence required for sound decision making is scarce, thus prompting a call for additional studies in the area of macroeconomic impact of investments in ICT. Using two time series data sets, one for the period from 1993 to 2002, and another for the period from 2003 to 2008, we investigate the impact of investments in telecoms on Total Factor Productivity (TFP) in the context of the TEs of Central Europe. Results suggest that while all TEs exhibited overall growth in productivity, the annual growth of the majority was inconsistent and not determined by the increase in the levels of investments in telecoms and full-time telecom labor. Further, a comparison of the two periods suggests that the most significant difference between those periods is that the dominant source of growth in productivity in the later transition period (2003-2008) is efficient utilization of the already available technology, while in the former transition period it was technological changes.