The Regional and Industrial Impacts of Digital Transformation on Firms

Digital transformation (DX) technologies are general-purpose technologies that replace human labor. They can be applied to a wide variety of industries today to enhance various aspects of firm performance. The Seoul Capital Area (SCA), which comprises the cities of Seoul and Incheon and the surrounding province of Gyeonggi, is home to most of Korea’s largest and most influential firms and economic activity. But the government has policies in place designed to promote balanced regional development, and DX is at the forefront of South Korea’s policy agenda for strengthening the competitiveness of industries outside the SCA. But in order for these efforts to be effective, it is necessary to analyze the unique ways that DX technologies can affect firms depending on their industry and even geographic location. For this study, we empirically analyze data extracted from Statistics Korea’s Survey of Business Activities to examine the different ways in which DX technologies impact firms in different regions and industries. Our analysis reveals that DX technologies exert a positive impact on employment and financial performance, especially at non-manufacturing firms in SCA and manufacturing firms outside of it. We also find that DX leads to better performance at non-SCA manufacturers. The results carry the following implications for DX-based balanced regional development policies. - The government should increase policy funding to support the use of digital technologies at factories and other places of business. It should also support upgrades of existing business sites. - There is a need for additional support measures to facilitate collaboration between buyers and suppliers of DX solutions. The Industrial Digital Transformation Promotion Act lays out some provisions calling for this support, but achieving balanced regional development requires more investment. - We should also increase support for research at public institutions that operate regional headquarters and have proven capable of providing quality research services essential for regional DX and innovation. - Finally, more support should be provided to regional post-secondary institutions of learning. Only by doing so can regions hope to develop and train their own human resources equipped with the necessary DX skills to enhance indigenous DX capacity.