Impact of digitalization on productivity

Abstract

Digitalization and Industry 4.0 are one of the main challenges nowadays and in the focus of intensive debates and scientific theoretical and empirical research. In order to analyse the impact of digitalization on productivity, we try to answer first the following question: How to measure the level of digitalization and its changes over time? We propose a new indicator based on Data Envelopment Analysis (DEA) overcoming the undesirable dependence of final result from the preliminary normalization of sub-indicators (used for the creation of the Digital Economy and Society Index (DESI) and the subjective nature of the weights used for aggregating. Then we try to answer the following research questions: How does the adoption of the elements of the digital economy going beyond automation contribute to the productivity growth? Can the reduced number of the working population in EU countries be compensated by digitalization? Utilizing the indicators of the four areas of digitalization (data from the Reports of EC 2017 and 2022) as the inputs (besides of capital and labour) in the DEA model (with GDP as the output) deeper insights into contributions gained by the particular areas of digital performance to the growth of GDP can be provided. Using the decomposition based on Kumar and Russell (2002) for the period 2017-2022, positive contribution of the change of digitalization to the GDP growth for the sample of 27 European countries is estimated. The results show significantly different impacts of the particular areas over the EU countries. On average, the strongest effect has connectivity (6,3%) and digital public services (4,3%) followed by integration of digital technology (1,8%), which implies higher contribution than change in labour input. In this way, the digitalization offers potential for the compensation of the declining labour force in ageing Europe.

Keywords: technological change, productivity growth, data envelopment analysis, decomposition, digitalization

JEL Classification: D43, I11, L11