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Productivity Drivers: Empirical Evidence on the Role of Digital Capital, FDI and Integration

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There are marked differences in productivity dynamics between countries as well as industries, often leading to substantial performance gaps, such as the gap in labour productivity between the EU and the US. In this article, we use the 2019 release of the EU KLEMS database to look into the drivers of productivity. In particular, we analyse how different types of capital (including intangible capital), foreign direct investment, integration into global value chains and EU integration affect labour productivity. Key findings are that intangible Information and Communication Technology (ICT) capital is a strong driver of productivity both at sectoral and aggregate levels, even more so than tangible ICT capital. Furthermore, backward global value chain integration and EU integration are positively associated with labour productivity. Contrary to expectations, we do not find evidence of a productivity-enhancing effect of foreign direct investment. Finally, we estimate by how much the productivity gap between the EU and the US could be reduced through different ICT investment policies.

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  • Amat Adarov & David Klenert & Robert Marschinski & Robert Stehrer, 2020. "Productivity Drivers: Empirical Evidence on the Role of Digital Capital, FDI and Integration," JRC Research Reports JRC122068, Joint Research Centre.
    • Handle: RePEc:ipt:iptwpa:jrc122068
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    2. Jeffrey Mollins & Temel Taskin, 2023. "Digitalization: Productivity," Discussion Papers 2023-17, Bank of Canada.

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    Keywords

    productivity; productivity gap; digitalisation; ICT capital; FDI; global value chains; intangible capital;
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