Digitalization and Productivity Growth Slowdown in Production Networks

I examine the recent productivity growth slowdown and the emergence of digital technologies through the lens of production networks. Digital technologies are increasingly embedded in intermediate inputs, and digital-intensive sectors, often key producers of intermediate and capital goods, amplify the positive effects of these technologies across industries. I show that the slowdown in computer-specific technical change has contributed to the decline in aggregate productivity growth, particularly in digital-intensive service industries, with these effects spreading through the economy via intersectoral linkages. My estimates suggest that this accounts for around 45–55% of the productivity growth slowdown in both the UK and the US since the mid-2000s. I attribute this slowdown largely to structural changes within the computers industry, especially the rising value-added intensity of the sector. In general, production in digital technology-producing industries is characterized by perfect complementarity, explaining the waning effects of digital technologies on aggregate productivity since the mid-2000s. In light of these findings, I take a pessimistic view on the future of productivity growth.