Productivity drivers of infrastructure companies: Network industries utilizing economies of scale in the digital era

Abstract

What drives the productivity dynamics of infrastructure companies? Using a panel of firms in 14 countries, we study total factor productivity (TFP) enhancers of utility and network services companies. We find that moving TFP closer to the technological frontier drives productivity growth at higher speeds in Asian countries than in European countries. We also find that financial leverage exerts a positive effect on TFP growth for larger infrastructure firms and that more financially developed countries utilize economies of scale through better use of financial resources. Large utility and transportation companies display a higher rate of TFP growth, indicating that a competition policy to encourage M&As would be prudent for the utility/transportation sectors to maximize economies of scale. In contrast, we find diseconomies of scale for energy companies in some countries. Moreover, young network firms improve TFP growth faster than their peers in countries with fewer product market regulations. Therefore, policies should remove entry barriers while facilitating the departure of old and low‐productivity firms from network markets. Finally, policymakers should offer well‐targeted fiscal incentives for intangible investments to boost TFP because the accumulation of intangible assets such as digital technology promotes more scale economies through network effects.

Artificial intelligence capabilities, dynamic capabilities and organizational creativity: contributing factors to the United Arab Emirates Government’s organizational performance

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“…According to Mikalef and Gupta (2021), the development of AIC has the potential to enhance OP in government organizations. The productivity paradox theory elucidates various concerns regarding the association between technology and productivity (Nakatani, 2023). The decline in productivity, despite the growing investments in advanced technologies such as AI, can be attributed to methods and evaluation challenges.…”

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“…The positive coefficient of firm size indicates economies of scale in the food industry. The magnitude of scale economies (i.e., the size of estimated coefficients of firm size) in the food sector is found to be slightly smaller than that in the infrastructure sector studied by Nakatani (2023a). We also examined a different definition of firm size for a further robustness check by using a lagged natural logarithm of sales in Table A5 in the appendix.…”

“…Aghion et al (2019) andNakatani (2023a) found the nonlinear effect of leverage on TFP growth, which is analogous to the inverted U-shaped relationship between public debt and fiscal performance because net benefits to debt financing arise for firms or countries with low debt levels for better resource allocation but decrease as leverage reaches high levels, inducing moral hazard(Nakatani 2021b). …”

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