Impact of Digitalization on Investment and Productivity of Manufacturing Industry: Evidence from China

Abstract

The global economy is accelerating its transformation from an industrial economy to a digital economy, and the digital transformation of the manufacturing industry has become an important trend worldwide. Based on China’s provincial panel data from 2004 to 2020, this study uses a dynamic panel model to investigate the role of digitization in the transformation and upgrading of the manufacturing industry. The empirical results show that digitalization has significantly improved the green total factor productivity (GTFP) of the manufacturing industry, while it has significantly inhibited investment in fixed assets. The analysis of regional heterogeneity shows that in areas with scarce labor, abundant human capital, and areas with high innovation investment, digitalization has a larger effect on promoting productivity and inhibiting the expansion of investment scale. In the regions with more outward foreign direct investment, the effect of digitalization on improving productivity is insignificant, and the effect on inhibiting the expansion of investment scale is larger, implying that there is a risk of industrial hollowing out. Further analysis finds that digitalization improves the GTFP of regional manufacturing through mechanisms such as enhancing innovation capabilities, promoting industrial upgrading, and improving investment efficiency, and reduces manufacturing fixed asset investment through channels such as human capital upgrades and rising labor costs.