Revised April 2024
One possible explanation for slower productivity growth in advanced economies despite widespread digital adoption is that some firms take time to use new technologies effectively. If this is the case, the firms that do adopt the technologies earlier can be expected to see a productivity gain compared to later-adopters. Using a unique UK firm-level data set, we construct digital capital stocks and explore the links between a large set of digital inputs, investments and firm-level productivity. While we find that larger firms are more digital-intensive and that digital adopters indeed have higher productivity than non-adopters, the nature of the digital technologies used is crucial. Those reflecting in-house capabilities are positively related to firm-level total factor productivity (TFP) while those indicating bought-in ones are negatively related. This finding that firms’ in-house capabilities matter for the impact of digital adoption on productivity takes advantage of the wide range of digital variables we can use, and underlines the role of organisational capabilities in considering the productivity slowdown.
The original version of this paper ‘Are digital-using UK firms more productive?’ was published 10 March 2022.