Digitalization and Productivity: In Search of the Holy Grail - Firm-level Empirical Evidence from European Countries

Abstract

This article assesses how the adoption of a range of digital technologies affects firm productivity. It combines cross-country firm-level data on productivity and industry-level data on digital technology adoption in an empirical framework that accounts for firm heterogeneity. The results provide robust evidence that digital adoption in an industry is associated to productivity gains at the firm level. Effects are relatively stronger in manufacturing and routine-intensive activities. They also tend to be stronger for more productive firms and weaker in the presence of skill shortages, which may relate to the complementarities between digital technologies and other forms of capital (e.g. skills, organisation, or other intangibles). As a result, digital technologies may have contributed to the growing dispersion in productivity performance across firms. Hence, policies to support digital adoption should go hand in hand with creating the conditions to enable the catch-up of lagging firms, notably by easing access to skills.

Keywords

• labour productivity
• digital technologies
• capital
• europe
• digitalization