Digital dividends in the phase of falling productivity growth and implications for policy making

Despite the rapid pace of digitalization, aggregate productivity growth rates in most advanced countries have slowed down consistently in recent years. It creates a “puzzle”, as investment in information technology (IT) has often been thought of as a remedy to solve productivity problems. The purpose of this paper is to examine the “puzzle” by using industry-level data.

This research uses industry-level longitudinal data and examines changes in both labour and multifactor productivity (MFP) in Australian industries. This study uses an instrumental variable (IV) approach to estimate the models.

Findings suggest an improvement in IT-led productivity performance in recent years. Industries with an above-average share of IT (IT investment as a share of total investment) have experienced MFP boosts since 2005.

Because of the aggregate nature of the data it was not possible to incorporate firm-specific factors, such as managerial and organisational factors, in the analysis.

The performance of IT has improved despite the falling growth in technology investment in recent years, suggesting that intangible factors, such as better regulatory and policy frameworks, have potentially played a positive role.

There are only a few studies using sectoral and longitudinal-type data, with many having become dated, meaning that there is a lack of understanding surrounding recent developments.