Information Technology for Development

ISSN: 0268-1102 (Print) 1554-0170 (Online) Journal homepage: http://www.tandfonline.com/loi/titd20

The impact of ICT on labor productivity in the EU

Marcin Relich

To cite this article: Marcin Relich (2017): The impact of ICT on labor productivity in the EU,
Information Technology for Development, DOI: 10.1080/02681102.2017.1336071

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Published online: 08 Jun 2017.

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 INFORMATION TECHNOLOGY FOR DEVELOPMENT, 2017
https://doi.org/10.1080/02681102.2017.1336071

The impact of ICT on labor productivity in the EU

Marcin Relich
Faculty of Economics and Management, University of Zielona Gora, Zielona Gora, Poland

ABSTRACT KEYWORDS
The paper is concerned with investigating relationships between IT development; enterprise
labor productivity and information and communication systems; productivity;
technology (ICT) components such as the use of enterprise transition economies;
socioeconomic development
resource planning (ERP), e-commerce and customer relationship
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management (CRM) software, and the number of ICT specialists at

the country level. The proposed approach uses a neoclassical
framework of growth accounting and a translog production
function to examine the impact of ICT components on labor
productivity in the transition and developed economies of the
European Union (EU). Our findings show the positive and
significant influence of selected ICT components on labor
productivity in EU countries. Moreover, the results indicate that
the impact of ERP, e-commerce and CRM software on labor
productivity is greater in transition economies than in developed
economies of the EU.

1. Introduction
Central and Eastern Europe (CEE) is a term for the group of countries that emerged from
the break-up of the Communist Bloc in Central, Southeast and Eastern Europe. The emer-
ging economies of these countries have been transition economies, that is, economies in
transition from a communistic central planning system to a free market system (Roztocki &
Weistroffer, 2008). This study considers CEE countries that became incorporated into the
European Community, that is, Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia,
Hungary, Slovenia, Romania, Bulgaria and Croatia. These 11 countries have attained a sig-
nificant development toward the free market system in the last two decades. However,
CEE countries are still struggling with low levels of labor productivity and economic
efficiency.
Despite education levels comparable to developed countries, transition economies are
only able to generate national incomes that are a small fraction of national incomes
created by developed economies. From the socioeconomic perspective, the gap in
overall productivity can result from insufficient on-job training, as many middle managers
believe there is no need for continuing education and that innovation is not necessary for
global competitiveness (Kowal & Roztocki, 2013). Information and communication tech-
nologies (ICT) are regarded by many as an opportunity and a catalyst for change in

CONTACT Marcin Relich [email protected] Faculty of Economics and Management, University of Zielona
Gora, Licealna 9, 65-417 Zielona Gora, Poland
Narcyz Roztocki is the accepting Associate Editor for this article.
© 2017 Commonwealth Secretariat
 2 M. RELICH

transition economies (Murugesan, 2010). However, the successful application of ICT should
be adapted to the existing business and regulatory environments (Roztocki & Weistroffer,
2011); this is usually difficult in transition economies (Bernroider, Sudzina, & Pucihar, 2011).
The economic liberalization witnessed since the early 1990s has exposed transition
economies to increased competition and globalization, while facing specific local con-
ditions resulting from both environmental/market and internal/organizational factors
(Harindranath, 2008). The results of studies on ICT adoption in transition economies
suggest that enterprise system (ES) implementations are affected to a greater extent by
financial and people-related problems compared with developed countries (Soja, 2008).
Moreover, IT adopters in transition economies appear to place greater emphasis on
phased enterprise resource planning (ERP) deployments and expect higher levels of exter-
nal support (Bernroider et al., 2011). Nevertheless, a positive effect of ICT adoption on
improving productivity and organizational performance is also observable in companies
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located in transition economies (Albu, Albu, Dumitru, & Dumitru, 2015; Dimelis & Papaioan-
nou, 2011).
The results of the literature review conducted by Roztocki, Soja, and Weistroffer (2015)
show that most studies on ESs in CEE countries refer to the organizational and project
level. Only two investigations of 27 analyzed studies have been conducted at the
country level. A considerable increase in ES implementations in CEE countries in recent
years can be seen as a prerequisite for improving labor productivity in companies and, ulti-
mately, at the country level. This is the motivation to investigate the impact of ICT on labor
productivity at the country level in transition and developed economies of the European
Union (EU). This study focuses on ICT components such as ICT specialists, ERP systems, cus-
tomer relationship management (CRM) systems and electronic commerce (e-commerce).
Moreover, this article presents an up-to-date analysis of the use of ERP and CRM systems in
CEE countries compared with the developed European (EU15) economies. The main con-
tribution of this research is an econometric model specification of labor productivity that is
based on selected ICT components. The research also investigates the direction and
strength of labor productivity growth in transition and developed economies of the EU
in recent years. The identified trends that describe labor productivity growth can help
executives and politicians in transition economies understand a shift of ICT components
(software and specialists) from the company level to the country level.
The remainder of the paper is structured as follows. Section 2 presents a literature
review concerning the ICT impact on countries and organizations, and ICT adoptions in
transition economies. Section 3 describes the research methodology, including an econo-
metric model specification of labor productivity. Section 4 presents a data analysis of
selected ICT components in the EU and verification of hypotheses. The final section
describes the main findings, contribution and summarizes the paper.

2. Literature review
2.1. ICT impact on countries and organizations
ICT has had a significant impact on most countries in the world, especially in the context of
communication, working and learning, from the perspective of economic growth of both
countries and companies. Cross-country studies show that the intensive use of ICT accel-
erates productivity growth in various industries (Dimelis & Papaioannou, 2011; Piatkowski,
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 3

2006). Thompson and Garbacz (2007) investigated the impact of penetration rates of tele-
communications on the level of technical efficiency in 93 developed and developing
countries during 1995–2003; their results indicate significant effects in low-income
countries. In turn, Dimelis and Papaioannou (2011) analyzed 42 countries and provided
strong evidence for a significant impact of ICT in reducing country inefficiencies and aug-
menting labor productivity.
Becchetti and Giacomo (2007) demonstrated that the introduction of the ICT variable
significantly improves the standard human capital-augmented level and growth
regression models. They analyzed the effects of ICT on levels and growth of per capita
GDP in 156 countries, using variables such as ICT expenditure (percent of GDP and per
capita) and communications (telephone lines, personal computers and internet hosts). A
neoclassical production function is used to present the impact of ICT on economic
growth of countries. Output of a neoclassical production function is often in the form of
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GDP or labor productivity, whereas inputs include the level of technology/total factor pro-
ductivity, capital stock and quantity of labor/size of labor force (Samoilenko, 2008).
Matteucci, O’Mahony, Robinson, and Zwick (2005) used a production function to esti-
mate labor productivity based on labor quality, ICT and non-ICT capital, and total factor
productivity. As human capital is one of the critical factors affecting the expansion of
ICT and the realization of macroeconomic outcomes, a model of economic growth is
often developed by incorporating a factor referring to human capital, for instance,
average schooling years of the working population or secondary schooling (Becchetti &
Giacomo, 2007; Dimelis & Papaioannou, 2011; Samoilenko & Ngwenyama, 2011). It
seems that the number of ICT specialists can as well reflect human capital to estimate
labor productivity. Nevertheless, this factor is neglected in describing economic growth
of countries. This is the motivation to consider the following hypothesis:
H1a. The number of ICT specialists has a positive effect on labor productivity at the country
level.

Apart from hardware and communications equipment, more and more attention is paid
to software that supports integration of key business and management processes, e-com-
merce or security of transactions. In recent years, the advancement of information technol-
ogy in business and management processes has placed ERP systems as one of the most
widely implemented business software platforms in various organizations. An ERP
system integrates core corporate activities and diverse functions, such as accounting, man-
agement of customer information, finances, human resources, supply chain, etc., by incor-
porating best practices to facilitate rapid decision-making, cost reduction and greater
managerial control (Wu & Wang, 2007).
Hitt, Wu, and Zhou (2002) indicated that ERP adopters are higher in performance across
a wide variety of measures than non-adopters. Their results suggested that business per-
formance and productivity increase during the implementation period, although there is
some evidence of a reduction in the gains shortly after the implementation is complete. It
seems that the use of ERP software in companies also impacts labor productivity at the
country level. To verify whether ERP diffusion positively impacts labor productivity, the fol-
lowing hypothesis is put forward:
H1b. ERP diffusion has a positive effect on labor productivity at the country level.
 4 M. RELICH

Similar to ERP, CRM software involves the specification of standard and replicable
business processes, and the automation of phase processes (Tanner, Ahearne, Leigh,
Mason, & Moncrief, 2005). Previous CRM research has mostly investigated data quality
and performance effects, mainly focusing on financial terms and customer-related benefits
(Li & Mao, 2012; Mithas, Krishnan, & Fornell, 2005; Richards & Jones, 2008). Although the
literature offers insights for improving the effectiveness of CRM technologies, there is a
lack of the research related to investigating the impact of CRM on labor productivity at
the country level and in the context of developed and transition economies.
The adoption of e-commerce activities has been investigated in several studies that con-
sider factors such as the quality of underlying ICT infrastructure, ICT skills, competitive
pressure, trading partner readiness and perceived strategic value for the company (Oliveira
& Martins, 2010; Sila, 2013; Vilaseca-Requena, Torrent-Sellens, Meseguer-Artola, & Rodrí-
guez-Ardura, 2007; Zhu, Kraemer, & Xu, 2003). Terzi (2011) concludes that the Internet
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will lead to increases in international e-commerce due to its capacity to reduce trade bar-
riers. While the gains from this will initially appear in developed economies, a shift to devel-
oping economies is expected in the long run (Falk & Hagsten, 2015). Kottemann and Boyer-
Wright (2010) investigate the impact of e-business on key national factors in developed and
developing economies, and present socioeconomic foundations that enable e-business.
With advances in ICT, ESs offer a new level of service to improve CRM and e-commerce.
These systems allow companies to manage customer contracts and orders. Moreover, cus-
tomer data can be further used for data mining and tracking market activity specific to a
product or industry (Beheshti & Beheshti, 2010). Nurmilaakso (2009) investigated the
impact of ICT solutions (e.g. ERP and CRM) on labor productivity (revenue per employee)
in nearly 2000 European companies in 2005. It seems that the use of CRM and e-commerce
software in companies also impacts labor productivity at the country level. To verify this
assumption, the following hypothesis is put forward:
H1c. CRM and e-commerce diffusion has a positive effect on labor productivity at the country
level.

As presented in Figure 1, the research model hypothesizes that ICT components have a
positive effect on labor productivity. ICT components derive from two fields: human
capital and investments that refer to quantity of labor/size of labor force and capital
stock in a neoclassical production function (Samoilenko, 2008). Labor productivity
impacts national and organizational development, and indirectly personal development
of employees, for instance, through greater investments in education. Consequently,
labor productivity can be considered in a socioeconomic perspective, as one of the
main factors that impact economic development (McCombie, Pugno, & Soro, 2002). Socio-
economic development at the national level results from economic growth, limited
inflation and international competitiveness that in turn stimulate social and environmental
programs. Labor productivity related to socioeconomic development at the organizational
level supports the company’s profits, competitiveness, reinvestment and wage growth.
Remuneration is supportive to achieve better quality of life, education and personal devel-
opment of employee and/or members of his/her family. This aspect can be considered as
the individual level of socioeconomic development. This research is concerned with inves-
tigating the influence of selected ICT components on labor productivity at the national
level in transition and developed economies of the EU.
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 5
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Figure 1. ICT and labor productivity in socioeconomic development.

2.2. ICT adoptions in emerging and transition economies

Prior research suggests that IT adoptions in transition economies differ from those con-
ducted in developed countries. In particular, IT implementations in the developing and
transition economies struggle with a lack of IT experience, inadequate IT infrastructure
and maturity, and a lack of long-term strategic thinking (Roztocki & Weistroffer, 2008).
This might also be connected with various factors such as fast changing laws and regu-
lations, strong governmental control, low and rising salaries, high demand for highly qua-
lified workers, and continuous and fast economic growth (Roztocki & Weistroffer, 2011).
Indjikian and Siegel (2005) investigated the impact of investment in IT (the average
annual percentage of GDP devoted to expenditure on ICT) on economic performance in
the context of 51 developing countries. This study considered productivity at different
levels of aggregation (e.g. enterprise, industry, national economy), and presented econo-
metric estimates of a Cobb–Douglas (CD) production function, with an additional input
representing investment in ICT capital. Hosman, Fife, and Armey (2008) analyzed the
relationship between GDP per capita and ICT expenditure per capita in 42 developing
countries during 2000–2006. They used both macro- and micro-level analyses to
examine ICT investment in the developing world, and their macro-level analysis revealed
that ICT-related investment resulted in positive returns to economic growth. In turn,
Samoilenko (2008) investigated the influence of ICT investments on economic outcomes
in 18 transition economies. The results of this research suggest that the major barriers are
the increased complexity of transforming investment into revenues and a lack of the
necessary socio-technical “know-how” to manage this complexity.
 6 M. RELICH

ERP implementations in transition economies, as compared to developed countries, appear

to be affected to a greater extent by financial and people-related problems (Soja, 2008). Lack of
adequate knowledge and problems with training and consultants in the CEE countries are
underlined by various studies (Kouki, Poulin, & Pellerin, 2010; Soja, 2008; Soja & Paliwoda-
Pekosz, 2013). Moreover, research on ICT investments has pointed toward the shortage of
technologically skilled ICT workers who can adopt, implement, innovate and maintain new
information technologies in transition economies (Samoilenko & Ngwenyama, 2011).
Many researchers consider ERP and CRM software together as an ES (Albu et al., 2015;
Hendricks, Singhal, & Stratman, 2007; Lech, 2012; Soja, 2015). Soja (2015) examined bar-
riers to ES implementation success in Polish companies. His results suggest that the
most important issues among ES implementations in transition economies pertain to
people. Moreover, there is the need for incorporating multiple stakeholder perspectives
in order to gain full insight into ES adoption. Albu et al. (2015) investigated the impact
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of the interaction between context variables and an ES on organizational performance

in Romanian enterprises. Their results indicate the need for sufficient external support
and that tailored solutions can contribute to a positive outcome from ERP implementation
and employment in transition economies.
The observable themes and trends in published studies on ES in transition economies
and opportunities for further research have been analyzed by Roztocki et al. (2015). They
identified three gaps in the existing research. Firstly, most research has been conducted in
the context of only a few countries. Secondly, most published studies have focused on
organizations or projects, neglecting the country level and individuals. A third gap is
the lack of theory development and the use of theories to explain observed phenomena.
One of opportunities for further research identified by Roztocki et al. (2015) is the compari-
son of ES implementation in different transition economies, as well as with development
economies. This aspect of research is considered in the presented study, that is, consider-
ing transition and developed economies of the EU.
A large body of empirical evidence indicates that the prerequisites and consequences
of ICT vary according to the type of ICT investment (Indjikian & Siegel, 2005). Moreover, the
empirical findings suggest that the potential for investment in ICT to generate substantial
productivity gains may actually be greater for enterprises in developing countries than
those in developed economies (Dimelis & Papaioannou, 2011; Thompson & Garbacz,
2007). This can be partially due to the fact that emerging and transition economies start
from a much lower economic base than highly industrialized countries. It seems that
this relationship can also take place in transition and developed economies of the EU.
This is the motivation to verify the following hypothesis:
H2. ICT components have a greater impact on labor productivity in transition economies than
in developed economies of the EU.

A general conceptual framework of research has been developed according to econo-

metric methodology that enables verification of the above hypotheses.

3. Research methodology
The impact of ICT on productivity growth can be analyzed with the use of growth account-
ing and econometric approaches (Dimelis & Papaioannou, 2011; Matteucci et al., 2005;
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 7

Samoilenko, 2008). The growth accounting approach has been extensively used to esti-
mate the impact of ICT capital on productivity growth (Cardona, Kretschmer, & Strobel,
2013; Crafts, 2004; Matteucci et al., 2005; Oulton, 2012). This approach is useful for the
decomposition of output or labor productivity growth into contributions from factor
inputs and underlying productivity growth or total factor productivity (Matteucci et al.,
2005). A neoclassical production function relates output and inputs as follows (Samoi-
lenko, 2008):
Y = f (A, K, L), (1)
where Y is the output (most often in the form of GDP or labor productivity), A is the level of
technology/total factor productivity, K is capital stock and L is the quantity of labor/size of
labor force.
Samoilenko (2008) used the neoclassical production function taking as output the rev-
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enues from telecoms, and as inputs: total factor productivity (A), investments in telecoms
(K ) and the quantity of full-time telecom employees (L). Dimelis and Papaioannou (2011)
adopted the above function and used GDP per worker as output along with the following
inputs: the share of ICT capital in total (non-ICT and ICT capital per worker), secondary
schooling and openness of trade. In turn, Nurmilaakso (2009) constructed a similar
model with output as the labor productivity of an organization (revenue per employee)
and the inputs as: the use of Internet, website, standardized data exchange, ERP system,
CRM system, SCM system, and training and education of employees.
In this study, output of the neoclassical production function is labor productivity (per
person employed and hour worked) and the inputs are: ERP diffusion, CRM and e-com-
merce diffusion and ICT specialists (L). Assuming the generalized form of the CD pro-
duction function, output Y is expressed as follows:
b b b
Yit = Ait ERPit 1 CRMit 2 Lit 3 , (2)

where Ait is the total factor productivity, and i and t represent the country and the time
period, respectively.
Since the CD production function is nonlinear, the above formula is linearized using the
following regression model:
log Yit = log Ait + b1 log ERPit + b2 log CRMit + b3 log Lit + 1it , (3)
where εit is the error term.
The extension to the CD production function is the transcendental logarithmic (trans-
log) production function (Samoilenko, 2008). The translog production function is an
improvement over the CD form since it allows the elasticity of substitution, returns to
scale and output elasticity to vary with the size of the inputs (Brynjolfsson & Hitt, 1995).
The tranlog function for the three above-mentioned ICT components can be written as:

log Yit = b0 + b1 log ERPit + b2 log CRMit + b3 log Lit + 0.5b11 (log ERPit )2
+0.5b22 (log CRMit )2 + 0.5b33 (log Lit )2 + b12 (log ERPit )(log CRMit ) (4)
+b13 (log ERPit )(log Lit ) + b23 (log CRMit )(log Lit ) + 1it .

The CD production function can be recovered by the tranlog function with various coef-
ficient restrictions (CD requires that coefficients on all squared and cross-terms are equal
 8 M. RELICH

to zero), and thus it is possible to test whether the fit is improved by employing a more
flexible functional form (Brynjolfsson & Hitt, 1995). The output elasticities can be calculated
from the translog production function estimates as follows:
EERP = b1 + b11 log ERP + b12 log CRM + b13 log L
ECRM = b2 + b22 log CRM + b12 log ERP + b23 log L (5)
EL = b3 + b33 log L + b13 log ERP + b23 log CRM.

The CD function is nested in the translog function, and the verification whether both
functions describe labor productivity equally well is related to testing the following
hypothesis (Samoilenko, 2008):
H0 :b11 = b22 = b33 = b12 = b13 = b23 = 0.
The above null hypothesis is tested with the use of the likelihood test at the 5% signifi-
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cance level.
The verification of hypotheses H1a, H1b, and H1c refers to testing the following null
hypothesis:
H0 :EERP = ECRM = EL = 0.

Testing the null hypothesis is based on the t-test. If the coefficient is statistically signifi-
cant at the 5% level, then it supports the hypothesis that an ICT component affects labor
productivity in the EU. The null hypothesis is tested to determine the presence of at least
one of the coefficients (EERP, ECRM, EL).
The verification of the hypothesis H2 is related to testing the following null hypothesis:
H0 :EERP CEE + ECRM CEE + EL CEE = EERP EU15 + ECRM EU15 + EL EU15 .

The alternative hypothesis indicates a significant difference between the elasticity of

scale in CEE and EU15 economies, and it is based on the t-test. Data used in the research
were derived from EU databases (Eurostat, European Commission), and were limited to the
period 2010–2015. A limited dataset can strongly influence the estimators and tests that
verify the econometric models. Labor productivity models are determined for all EU
countries, CEE countries and developed countries of the EU. The model verification is
based on an F-statistic that is valid if at least one estimated parameter is significant.

4. Data analysis
This section presents a short description of the research variables and results of verifying
hypotheses. The research variables are presented in the context of the EU countries that
belong to the CEE region (transition economies) and the countries that joined the EU
before 2004 (EU15 – developed economies).

4.1. Comparison of the research variables

Table 1 presents the mean and standard deviation (SD) of the research variables for all 28
EU countries, EU15 countries and CEE countries in 2015. Labor productivity is presented
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 9

Table 1. Descriptive statistics of the research variables.

EU28 EU15 CEE
Mean (%) SD (%) Mean (%) SD (%) Mean (%) SD (%)
Labor productivity per hour worked (EU28 = 100) 100 36.33 118.45 32.13 63.14 10.57
Labor productivity per hour worked (2010 = 100) 107.54 7.83 104.91 8.51 110.91 6.03
Enterprises with ERP software package 33.86 10.68 39.40 9.51 25.82 7.37
Enterprises with e-commerce and CRM 18.21 6.92 20.73 7.30 15.36 5.55
ICT specialists in the labor force 3.44 1.27 3.91 1.44 2.90 0.81
Source: Eurostat (data code: tesem160, tsdec310, isoc_bde15dip, isoc_bde15dec, isoc_sks_itspt).
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Figure 2. Labor productivity in EU countries in 2015 (EU28 = 100%). Source: Eurostat (data code:
tesem160).

from two perspectives: with reference to the average of the 28 EU countries in 2015 and
with reference to productivity in year 2010.
Figure 2 illustrates labor productivity per person employed and hour worked (EU28 =
100%) in EU countries in 2015. Black bars indicate transition economies in the CEE region.
Most of EU15 countries have labor productivity above the average of the EU28. Exceptions
are the economies of Greece and Portugal where the labor productivity reaches about 70%
of the average of the EU28 in 2015. The average increment of labor productivity in the CEE
region in the period 2010–2015 reaches about 10%; this is more than double when com-
pared to developed economies of the EU.
The use of ERP, CRM and e-commerce software packages, and the number of ICT
specialists is less in the CEE region than in EU15 countries. The following subsections
present these three variables in more detail.

4.2. Analysis of ERP diffusion in the EU

EU enterprises have been surveyed in the context of ERP diffusion in two issues: the
number of enterprises that had an ERP software package for sharing information on
sales/purchases with other internal functional areas (in the period 2007–2009), and the
number of enterprises that had ERP software packages for sharing information between
different functional areas (in the period 2010–2015). Figure 3 presents the percentage
 10 M. RELICH

Figure 3. Use of ERP software in all enterprises in EU countries in 2015 (% of enterprises). Source: Euro-
stat (data code: isoc_bde15dip).
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of enterprises that use ERP software in EU countries in 2015. Except Lithuania, all CEE
countries are below the EU15 average (39%).
A systematic increase of ERP diffusion is observable in both CEE and EU15 countries. In
particular, large enterprises are interested in using ERP systems to support the effective-
ness of numerous business processes. The gap between ERP diffusion in different
company sizes in the CEE region and EU15 countries is generally constant during 2010–
2015, and it reaches about 15% in 2015.

4.3. Analysis of CRM and e-commerce diffusion in the EU

The use of CRM and e-commerce software in EU countries is presented in Figure 4. Only
two countries from the CEE region (the Czech Republic and Slovenia) have the use of CRM
and e-commerce software above the average of the EU15. It is notable that the smallest
number of CRM and e-commerce diffusion is in Greece; it is classified as a developed
economy, but recently faces a financial crisis that can reduce the ICT expenditures. The

Figure 4. Use of CRM and e-commerce in EU countries in 2015 (% of enterprises). Source: Eurostat (data
code: isoc_bde15dec).
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 11

gap between the CEE region and EU15 countries is generally constant during 2010–2015
and averages about 5%.

4.4. Analysis of the number of ICT specialists in the EU

Figure 5 presents the number of ICT specialists as percentage of total employment in EU
countries. Only one country from the CEE region (Estonia) has a larger percentage of ICT
specialists than the average of the EU15 in 2015. The least percentage of ICT specialists in
the labor force occurs in Greece, thus lowering the average of the EU15. Consequently,
there is a minor difference between the average percentage of ICT specialists in the
CEE region and the EU15 in comparison with other research variables.

4.5. Hypotheses testing and findings

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Empirical results include estimating labor productivity regression models, output elastici-
ties and elasticity of scale for three groups of countries, and verifying the research hypoth-
eses. Table 2 presents the coefficients of the translog function, the coefficients of
determination (R 2) and the F statistics for the EU28, EU15 and CEE countries. Several coef-
ficients of regression models are statistically significant at the 0.05 level, especially for the
EU28 and EU15 countries. The likelihood test also indicates that the CD production func-
tion is rejected in favor of the translog production function at the 0.05 significance level.
The coefficients of determination and the F statistics confirm a good fit of the labor pro-
ductivity regression models to the data.
Table 3 presents the output elasticities, elasticity of scale and the relevant standard
error estimates for the EU28, EU15 and CEE countries. All estimates of elasticities except
EERP in the EU15 are statistically significant at the 0.05 level. Moreover, all output elasticities
have a positive effect on labor productivity in the EU28, supporting Hypothesis 1. The
results indicate that the number of ICT specialists has the strongest impact on labor pro-
ductivity among three ICT components. If the number of ICT specialists increases by 1%,
labor productivity of most EU economies will increase by around 0.49%. The elasticity of
scale is around 0.91 in the EU28; as this is not significantly different from one, ICT

Figure 5. ICT specialists in EU countries in 2015 (% of total employment). Source: Eurostat (data code:
isoc_sks_itspt).
 12 M. RELICH

Table 2. Estimation results of labor productivity regression models.

Variable EU28 EU15 CEE
Constant 2.037** 1.247 4.303***
(0.996) (1.693) (0.490)
Log ERP 0.263 1.462** −0.716**
(0.479) (0.694) (0.343)
Log CRM 0.407 −0.105 0.309
(0.609) (0.728) (0.452)
Log L 0.950 1.663 0.117
(0.597) (1.102) (0.508)
0.5(Log ERP)2 0.382** −0.210 0.165
(0.185) (0.180) (0.201)
0.5(Log CRM)2 0.421* 0.591** −0.070
(0.240) (0.247) (0.167)
0.5(Log L)2 −0.486 −0.722*** 0.224
(0.316) (0.257) (0.365)
(Log ERP)(Log CRM) −0.445*** −0.328 0.059
(0.160) (0.228) (0.132)
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(Log ERP)(Log L) 0.075 0.152 0.194*

(0.139) (0.262) (0.102)
(Log CRM)(Log L) −0.059 −0.357* −0.228
(0.208) (0.214) (0.165)
R2 0.60 0.66 0.71
F-test 24.03 16.99 15.43
Note: Standard errors are reported in parentheses.
*p < 0.1.
**p < 0.05.
***p < 0.01.

Table 3. Estimated output elasticities and elasticity of scale.

EU28 EU15 CEE
EERP 0.337*** 0.005 0.094***
(0.017) (0.015) (0.014)
ECRM 0.088*** 0.049** 0.084***
(0.018) (0.023) (0.011)
EL 0.487*** 0.261*** 0.302***
(0.017) (0.044) (0.012)
Elasticity of scale 0.912*** 0.305*** 0.480***
(0.017) (0.046) (0.020)
Note: Standard errors are reported in parentheses.
*p < 0.1.
**p < 0.05.
***p < 0.01.

components have constant returns to scale. The output elasticities of all selected ICT com-
ponents are higher in the CEE than in the EU15, supporting Hypothesis 2.
Table 4 presents findings for three null hypotheses, including test statistics and p-
values. The likelihood test indicates the rejection of the first null hypothesis at the 0.05
level of significance; thus the translog function is more adequate than the CD production
function for the specification of labor productivity in the EU. The verification of the second
and third null hypotheses is related to using the t-test. The tests indicate that the esti-
mated coefficients for ICT components in the EU are statistically significantly different
from zero at the 0.01 level. The last null hypothesis is also rejected as the output elasticities
do not have a similar impact on labor productivity in EU15 and CEE economies.
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 13

Table 4. Findings of verifying hypotheses.

Null hypothesis Test statistics p-Value Decision
H0: β11 = β22 = β33 = β12 = β13 = β23 = 0 CD χ 2 = 13.76 (6)a 0.032 Reject H0
H0: EERP = ECRM = EL = 0 No impact of ICT components tERP = 20.062 (155)b 0.000 Reject H0
on labor productivity in the EU tCRM = 4.887 (155)b 0.000 Reject H0
tL = 28.843 (155)b 0.000 Reject H0
H0: EERP_CEE + ECRM_CEE + EL_CEE = EERP_EU15 + ECRM_EU15 t = 3.482 (120)b 0.001 Reject H0
+ EL_EU15 ICT components have a similar impact
on labor productivity in the CEE and EU15
Note: Degrees of freedom are reported in parentheses.
a
The likelihood test.
b
The t-test.

5. Discussion
The results of this study show that the number of ICT specialists, ERP and CRM diffusion
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significantly impact labor productivity at the country level in the EU, especially in the
CEE region. This is consistent with research concerning the impact of ICT on improving
labor productivity. Dimelis and Papaioannou (2011) provided strong evidence for a signifi-
cant impact of ICT in reducing country inefficiencies. Their findings can be referenced to
the use of ERP, CRM and e-commerce software as factors that improve labor productivity
at the country level in the EU. These findings are also consistent with research on the
impact of ICT on increasing ERP software on labor productivity at the firm level. Beheshti
and Beheshti (2010) showed that ERP software packages may improve company pro-
ductivity through data consolidation into a central database, and consequently, the
timely retrieval of up-to-date information to meet the ever-changing needs of customers
and executives. Our research confirms the impact of ERP diffusion on labor productivity at
the country level through the company level, especially in transition economies of the EU.
The empirical findings suggest that the potential for investment in ICT to generate sub-
stantial productivity gains may actually be greater for enterprises in developing countries
than those in developed countries (Indjikian & Siegel, 2005). Similar trends have been dis-
covered in our research that indicates a greater increment of all selected ICT components
in transition economies than in developed economies of the EU. This is partially due to the
fact that transition economies start from a much lower economic base than highly indus-
trialized countries. While the gap of ERP implementations between CEE and EU15
countries is similar in the last years, the ERP diffusion has a stronger impact on labor pro-
ductivity in CEE countries. This does not have to be contrary to the findings of research on
the unsatisfactory effectiveness of ERP implementations in transition economies of CEE.
The difficulties during implementation of ERP software in CEE countries often result
from organizational conditions (Albu et al., 2015), including problems with training and
consultants (Soja & Paliwoda-Pekosz, 2013). CEE companies may need higher levels of
external support during ERP implementation, which can be longer and less effective,
but after the implementation phase, the impact of ERP diffusion on company productivity
can be still satisfactory (Bernroider et al., 2011).
Most ICT-related studies refer to ICT diffusion and implementation, less focusing on ICT
strategy, management, design and impact in transition economies (Roztocki & Weistroffer,
2015). In addition, the overwhelming majority of researchers have found a positive corre-
lation between IT investment and economic performance at each level of aggregation, for
instance, company, industry and national economy (Bernroider et al., 2011; Hitt et al., 2002;
 14 M. RELICH

Indjikian & Siegel, 2005). Although many of these studies are derived from developed
economies, this evidence provides important lessons for developing and transition econ-
omies (Indjikian & Siegel, 2005). Our empirical findings refer to this trend in the context of
the impact of ICT on the national economies in the CEE region.
The empirical studies demonstrate that ICT plays a significant role in the productivity
statistics, and the productivity effect is not only positive, but also increasing over time
(Cardona et al., 2013). Similar results have been identified in our research that illustrates
the growth of labor productivity in transition and developed economies of the EU
(except Greece) during 2010–2015. Moreover, our empirical findings indicate a significant
impact of the number of ICT specialists, ERP and CRM diffusion on labor productivity
growth in EU countries. This is similar to the results presented by Nurmilaakso (2009)
who investigated the impact of the selected ICT components on labor productivity at
the organizational level. Interestingly, our results show that all three considered ICT com-
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ponents have the greater impact on labor productivity in transition economies than in
developed economies of the EU. The largest disproportion refers to the impact of CRM
and ERP software on labor productivity. The greater impact of ICT specialists on labor pro-
ductivity growth in CEE countries, compared with EU15 countries, can result from the need
to hire more ICT specialists to overcome problems that occur during ES adoption in tran-
sition economies (Soja, 2015).
The main limitation of this study is connected with the scope of research results that are
limited to CEE countries that belong to the EU. As a consequence, the forecasts for other
countries should be cautiously generalized. Presumably, the research findings can refer to
countries from CEE which belonged to the Communist Bloc and are now undergoing
economic transition but are outside the European Community (e.g. Macedonia, Serbia,
Belarus, Ukraine). Another limitation results from the nature of the available data. The
time-lag effects of selected ICT components can be significant. Moreover, the small data
sample can result in non-normality and heteroscedasticity, thus limiting the reliability of
the findings.
The limitation of this study can be an incentive for future research that aims to inves-
tigate the impact of the different ICT components on labor productivity in other transition
economies beyond the CEE region. Further research can also be focused on a comparison
of developed economies with transition economies in terms of the use of ICT components
and their impact on labor productivity at various levels of aggregation, for example, enter-
prise, industry and national economy, as well as in terms of the type of organization
(holding company, subsidiaries) or organizational structure.

6. Conclusion
The current ICT have become one of the most important factors, conditions and opportu-
nities for company development. These technologies, including ERP, CRM and e-com-
merce software, enable the improvement of efficiency for executing business processes
in enterprises. In recent years, the advancement of information technology in business
management processes has placed ERP as one of the most widely implemented business
software systems in enterprises. Also, CEE enterprises are highly interested in the use of
ESs that promise to improve labor productivity. Consequently, ESs can be seen as a
factor of labor productivity at the country level.
 INFORMATION TECHNOLOGY FOR DEVELOPMENT 15

The main contribution of this research is the estimation of labor productivity at the
country level using ICT-related variables such as ERP software, e-commerce and CRM soft-
ware, and the number of ICT specialists. The proposed approach uses a neoclassical frame-
work of growth accounting, as the theoretical foundation of the investigation, and the
translog production function to examine the impact of ICT components on labor pro-
ductivity in transition and developed economies of the EU. The results show that three
selected ICT components have a positive and significant impact on labor productivity in
EU countries; in particular, the number of ICT specialists has a large impact on labor pro-
ductivity among ICT-related variables.
Another contribution of this research is the comparison of transition and developed
economies of the EU in terms of the impact of selected ICT components on labor pro-
ductivity. The results show a greater impact of all selected ICT components on labor pro-
ductivity in transition economies than in developed economies of the EU. There is a large
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difference between CEE and EU15 countries concerning the impact of ERP and CRM diffu-
sion on labor productivity. According to the regression analysis, the use of the same
number of CRM software almost doubles the labor productivity in transition economies
when compared to developed economies of the EU.
This study is relevant to practitioners and researchers concerned with developing ESs
both in transition and developed economies of the EU. This research presents the
impact of selected ICT components on labor productivity at the country level. Therefore,
the findings can be used by political authorities to estimate the potential growth of labor
productivity or identify ICT components that are significant for the national economy and
thus should be stimulated by the state. The identified trends of labor productivity growth
can help executives and politicians understand the effects of shifting selected ICT com-
ponents from the company level to the country level. Labor productivity impacts socioe-
conomic development at national, organizational and individual levels. Productivity
improvement at the country level supports economic growth, international competitive-
ness, GDP and, consequently, stimulates educational, social and environmental programs.
In turn, productivity improvement at the company level is a prerequisite for increasing a
company’s competitiveness and profitability, and helps managers make decisions related
to reinvestment or wage growth. The greater increment of labor productivity in transition
economies, compared to developed economies of the EU, can be used by business man-
agers, executives and politicians to shift transition economies toward increasing reinvest-
ments and wage growth in the CEE region.

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributor
Marcin Relich received the PhD degree in Management Information Systems from Wroclaw Univer-
sity of Technology, Poland. He is currently an Assistant Professor at the Division of Controlling and
Computer Applications in Economics, Faculty of Economics and Management, University of Zielona
Gora, Poland. His research interests include ICT investment evaluation, ICT productivity and invest-
ments in transition economies, project management, new product development, and computer
assisted decision-making.
 16 M. RELICH

ORCID
Marcin Relich http://orcid.org/https://orcid.org/0000-0003-1193-432X

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