The Importance of ICT Investment in EU Total Factor Productivity Growth: Industry Analysis for 2000-2020

Purpose: The aim of the article is to verify the hypothesis that a positive relationship between ICT capital growth and TFP change, although lagged in time and varying across different sectors, can be observed in the EU. Design/methodology/approach: The research approach including EUKLEMS productivity data and econometric methods, i.e. cross-sectional and panel growth regressions focuses mainly on the importance of individual ICT-using sectors in shaping EU TFP change. It is conducted for a combined sample of ICT-using industries across 13 EU member states in the period 2000-2020. Findings: The conducted study proved that for EU ICT-using sectors there was a negative relationship between current ICT investment and TFP change, which may explain the productivity paradox. The 5-year lagged positive impact of ICT investment on TFP was evidenced for most EU ICT-using sectors, except professional, scientific activities and administrative services. Practical implications: The findings may constitute an important signal to economic policymakers shaping the directions of future innovation policy at both national and EU level to particularily focus on these sectors that have a clear problem with effective ICT implementation. Originality/Value: This industry-level study covers a relatively large group of EU members and a period including the rarely examined decade of 2010–2020. The applied methodology represents a step forward through examining the importance of individual ICT-using sectors in shaping EU TFP change.