Digital dividends in the phase of falling productivity growth and implications for policy making

Purpose: Despite the rapid pace of digitalization, aggregate productivity growth rates in most advanced countries have slowed down consistently in recent years. It creates a “puzzle”, as investment in information technology (IT) has often been thought of as a remedy to solve productivity problems. The purpose of this paper is to examine the “puzzle” by using industry-level data. Design/methodology/approach: This research uses industry-level longitudinal data and examines changes in both labour and multifactor productivity (MFP) in Australian industries. This study uses an instrumental variable (IV) approach to estimate the models. Findings: Findings suggest an improvement in IT-led productivity performance in recent years. Industries with an above-average share of IT (IT investment as a share of total investment) have experienced MFP boosts since 2005. Research limitations/implications: Because of the aggregate nature of the data it was not possible to incorporate firm-specific factors, such as managerial and organisational factors, in the analysis. Practical implications: The performance of IT has improved despite the falling growth in technology investment in recent years, suggesting that intangible factors, such as better regulatory and policy frameworks, have potentially played a positive role. Originality/value: There are only a few studies using sectoral and longitudinal-type data, with many having become dated, meaning that there is a lack of understanding surrounding recent developments.