Measuring digital innovation

Digitalisation is a fundamental feature of today’s economy. To understand the digital economy we need new measurement methods. This project builds on and extends other ESCoE research to further explore the implications of digitalisation for measuring productivity. We focus on: business reorganisation and outsourcing; the use of artificial intelligence (AI); data as an intangible asset; and the breadth of contemporary digital infrastructure.

This project investigated four main interconnecting strands: longer production chains, the impact of AI, measurement of the role of data, and internet infrastructure.

We explored the implications for productivity measurement of longer production chains due to business reorganisation and outsourcing associated with digitalisation. We aimed to specify as fully as possible the range of capitals, as well as services and material inputs (raw and processed) used in production, in a growth accounting framework.

The mismatch between expected and measured productivity growth in relation to the use of artificial intelligence (AI) can arise for a number of reasons (including implementation lags, mismeasurement or simply false hopes). We examined AI uptake, looking at the adoption cycle of cloud technologies and firm-level productivity, based on interviews with businesses and information gathered from business websites.

There is growing recognition of the importance of intangibles in the economy. We focused on data as an intangible asset, building on existing work by ONS, OECD and ESCoE. We also developed and applied methods for estimating the value of different types of data.

Digital infrastructure is vitally important as an enabler of economic growth in the modern economy. Yet relatively little is known about the totality of or access to digital infrastructure. As part of this project we considered the definition of digital infrastructure, explored available data, and identified data gaps.

Given that the topic of interest is new and rapidly evolving, the data on digital innovation is scarce. We used a range of data sources and methods, including firm-level analysis and case studies.

For research on longer production chains, we developed a firm-level dataset on a multitude of production inputs, comprising traditional labour and capital inputs, as well as a range of intangible and services inputs. This allowed analysis of the connection between different inputs and output in a growth accounting framework.

We are also using firm-level analysis to explore the impact of artificial intelligence (AI). Using data on AI use collected from company websites, combined with firm-level financial data through fuzzy matching, we explore the link between AI use and performance.

For research on data as an asset, and on digital infrastructure, we start from the position that relatively little is known. Our initial work was thus in compiling a range of statistics on the structure and size of the data economy, using various frameworks and case studies, and on collating available data on digital infrastructure. Our current work is valuing different types of data, using methods such as discreet choice analysis. Other analysis has valued data by comparing the organizational capital of data-intensive and less data-intensive firms.

The findings from this project have demonstrated that digital innovation is important for growth and productivity.

Our work on the data economy made a preliminary, conservative estimate of the market size for data in the global hospitality industry of $43.2 billion, with a growth rate currently doubling market size every three years. This acts as a case study to demonstrate the importance of data, even in a sector most would consider not very digital.

In work on production chains, digital and productivity, we found that large firms are more digital-intensive than small ones and that digital adopters have higher productivity than non-adopters. However, the nature of the digital engagement matters. Having key digital capabilities available in-house, as opposed to purchasing in digital services from external suppliers, seems to be an important indicator.

Our work on cloud computing suggests that cloud usage can positively impact firm productivity, but the impact is not immediate as firms need to learn how to use this new technology. The impacts are larger for smaller firms, consistent with the idea that cloud opens up opportunities for these firms to engage in innovative activities.

Romanko, O. (2023) ‘Technology and firm performance: evidence from online data sources’ King’s College London Doctoral Thesis

Coyle, D. ‘The cost of computing and the productivity puzzle’ ESCoE Conference on Economic Measurement 2023, Plenary Session II, King’s College London, 17-19 May 2023

Richard Heys, ONS keynote interview with Diane Coyle ESCoE Conference on Economic Measurement 2023, , King’s College London, 17-19 May 2023

Coyle, D., Lind, L., Nguyen, D. and Tong Koecklin, M. “Are digital-using UK firms more productive?” 7th WorldKLEMS Conference, Plenary Session 1 Digital and Intangibles, University of Manchester, 12-13 October 2022

Coyle, D. and Msulwa, R. (2022) “Digital Concrete: Productivity in Infrastructure Construction” ESCoE Discussion Paper Series, ESCoE DP 2022-21

Coyle, D.  “Are Digital-using UK Firms more Productive?” ESCoE Conference on Economic Measurement 2022, Special Session D, University of Strathclyde, 25-27 May 2022

Romanko, O. ‘Digital Opportunity: How Cloud Computing Changes the Shape of the UK Economy‘, ESCoE Conference on Economic Measurement 2022, Contributed Session F: Digitalisation, University of Strathclyde, 25-27 May 2022

Coyle, D. and Msulwa, R. ‘Digital Concrete’ ESCoE Conference on Economic Measurement 2022, Poster Exhibition, University of Strathclyde, 25-27 May 2022

Romanko, O. “Digital Opportunity: How Cloud Computing Changes the Shape of the UK Economy” Brown Bag Seminar Series, The Productivity Institute, 18 May 2022

Tong Koecklin, M. and Coyle, D. ‘Are Digital-Using UK Firms more Productive?’ Brown Bag Seminar Series, The Productivity Institute, 20 April 2022

Coyle, D. and Msulwa, R. “Digital Concrete: productivity in construction“, CRIW Conference on Technology, Productivity, and Economic Growth National Bureau of Economic Research, 17-18 March 2022

Coyle, D., Lind, L., Nguyen, D. and Tong Koecklin, M. “Are digital-using UK firms more productive?” ESCoE blog, 10 March 2022

Coyle, D., Lind, L., Nguyen, D. and Tong Koecklin, M. (2022) “Are digital-using UK firms more productive?” ESCoE Discussion Paper Series, ESCoE DP 2022-06

Coyle, D. and Manley, A. (2021) “Potential social value from data: an application of discrete choice analysis” ESCoE Discussion Paper Series, ESCoE DP 2021-17

Coyle, C. and Li, W. “The Data Economy: Market Size and Global Trade” 36^th Annual Virtual General Conference, Session 23: National Accounts, IARIW, 23-27 August 2021

Romanko, O. “Digital Opportunity: How Cloud Computing Changes the Shape of the UK Economy” 36^th Annual Virtual General Conference, Session 2: The Potential and Challenges of Big Data and other Alternative Data in the Production of Prices, National Accounts, and Measures of Economic Well-Being, IARIW, 23-27^th August 2021

Coyle, D. and Li, W. ‘The data economy market size and global trade’ ESCoE Blog, 2 Aug 2021

Coyle, D. and Li, W. (2021) “The data economy: Market size and global trade” ESCoE Discussion Paper Series, ESCoE DP 2021-09

Coyle, D.”The Data Economy: more questions than answers” Federal Reserve Banks of Atlanta, Dallas and Richmond, Technology-Enabled Disruption: Implications for Business, Labor Marde, 25-27 May 2022kets and Monetary Policy, 21 May 2021

Coyle, D. ‘ Why digital is so disruptive’ Royal Economic Society Annual Public Lecture 2021, 6 May 2021