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

This paper presents firm-level estimates of revenue-based total factor productivity (TFPR) pre miums associated with the adoption of digital technologies in 82 developing economies with data from 2003-18. The paper estimates TFPR using the control function approach. It en dogenizes the productivity process, making it a function of digital technology adoption (e.g., email and website), learning-by-exporting, and managerial experience. The results reject the null hypothesis of an exogenous TFPR process. Digital technology adoption, along with the other firm-choice variables (exporting status and managerial experience), affects productivity and factor demand. The estimated premiums are positive for 63.38 (email adoption), 54.73 (website adoption), 59.08 (learning by exporting), and 60.05 (managerial experience) percent of the sample. The probability-adjusted median adoption is 1 percent, and that of website adoption is 2.3 percent. The latter is higher than the expected premiums associated with exporting and managerial experience. On average, changes in digital technology adoption (e.g., email and website) are labor and capital augmenting. The estimated jobs gains from digitization fall within the range of estimates previously reported in the literature. The paper also explores the role of complementarities among firm investments and provides insights for the targeting of firm-level interventions aimed at boosting TFPR.