The Effects of Digital-Technology Adoption on Productivity and Factor Demand: Firm-Level Evidence from Developing Countries

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Innovation Imperative for Developing East Asia

“…Whereas computer use tends to be "labor saving" and raises relative demand for higher-skilled workers, overall employment has increased with rising demand for Vietnamese production and exports (Poole et al 2017). Cross-country evidence (based on World Bank Enterprise Survey data from 82 low-and middleincome countries) is consistent with the country-level findings: increased adoption of digital technologies is associated with greater firm-level demand for labor, controlling for other factors (Cusolito, Lederman, and Peña 2020).…”

The Upside of Digital for the Middle East and North Africa: How Digital Technology Adoption Can Accelerate Growth and Create Jobs

“…For both regions, most of the gains are achieved in the early years. To the extent that the results reported in Cusolito, Lederman, and Peña (2020) are robust, this evidence suggests that most of the gains can be achieved quickly if lower-productivity firms are targeted first. Another important policy implication is that most of the upside gains in enterprise revenue productivity are associated with digitalization of the less advanced enterprises that do not export and the exporting enterprises that have the highest revenue per unit of factor of production (profitability) before digitalization, as reported in Cusolito, Lederman, and Peña (2020).…”

“…Consequently, prices can fall, reducing revenues for producers, but enhancing consumer welfare. In fact, Cusolito, Lederman, and Peña (2020) report that revenues do fall for a substantial portion of enterprises in low-and middle-income countries, although the median (or typical) marginal impact is positive. These ideas are explored further below.…”

“…However, the impact of digital technology adoption on the performance of enterprises is complicated by the fact that the effects tend to differ across enterprises. Cusolito, Lederman, and Peña (2020) show evidence suggesting that the gains in revenue productivity are higher for some firms than for others, depending on how productive they were before adopting a business website or whether they are exporters or not. More specifically, the evidence suggests that firms with lower productivity tend to experience higher marginal gains (the β parameter) than firms with higher levels of productivity to begin with.…”

“…An important policy issue emerges, therefore, because of the apparent heterogeneity in the marginal effects of digital technology adoption by manufacturing enterprises, which are reported by Cusolito, Lederman, and Peña (2020). If governments have limited resources for providing digital services to enterprises or training programs to entrepreneurs, the issue is which types of enterprises should be prioritized.…”