Digital technologies and productivity

Economies in industrialized countries have been experiencing slow productivity growth and a persistent decline in business dynamics, despite significant technological changes, capital investment and various public programs supporting firms. This paper asks if digitization is able to engender positive effects on productivity and to foster a catch-up process of low-productivity firms.

Using a representative sample of Portuguese firms for the period 2014-2019, this study assesses the impact of adopting digital technologies on firms´ productivity. The paper explores some of the reasons why the benefits at firm level could be disappointing at the aggregate level. In particular, it evaluates (1) whether there are differences in the productivity benefits from digitalization among firms belonging to different industries and with different levels of productivity and (2) whether digitalization is able to foster productivity convergence between low-productivity and high-productivity firms.

One of the main results suggests that persistent efforts to narrow productivity differentials require an increasing degree of sophistication and complementarity in digitization, combined with other factors that promote productivity gains. The paper also finds that the firms that derive the most benefits from digitization are the high-productivity ones, which may reinforce the divergence in productivity between firms and lower visibility of the impact of digitization on aggregate productivity. This result is particularly visible in the case of small and medium-sized firms with the adoption of second-generation digital technologies, such as big data and automation.

Together, the results suggest the need to coordinate efforts to jointly promote digitization, complemented by organizational changes and improvement in human capital. Finally, in sectors with little or no digitization, initiatives to promote digital transformation should pay greater attention to low-productivity firms, as they seem to benefit from first-mover advantages of digitalization.

Click here to go to the paper by Natália Barbosa and Ana Paula Faria.