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Digital transformation and productivity trends: the new paradox

Published on August 30, 2022   38 min

A selection of talks on Management, Leadership & Organisation

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0:00
Welcome, everybody. My name is Cecilia Jona-Lasinio. I am a Senior Researcher at the Economic Studies and Economic Forecasting Division at the Italian Statistical Institute. I am an Adjunct Professor of International Economics at LUISS Guido Carli University in Rome. Today I'm going to talk about the role of the digital transformation for explaining the recent productivity trends. In particular, shed some light on the new productivity paradox.
0:33
In order to understand what's going on in the modern economies that are actually experiencing a digital transformation involving several aspects of social and economic life. Today, we're going to take a look at the impact of the digital transformation on productivity growth, as well as the role of intangible capital and intangible investments and we will shed some light on the factors that matter for understanding the current productivity paradox. If we focus on the modern economies, we realize that in order to lead an economy successfully through the fast-changing market conditions, that the digital transformation is actually implying, it is necessary for the companies, but also for people to be ready to adapt to these fast changes. For companies, this implies adopting new business models, to take better care of customer relations, and to deal with very new and very fast-changing technological tools. This is the case for most of the high digital companies for which there is the expectation that, as they are actually adopting very fast and very quickly in the new digital technology, they are going to deliver more, implying less inputs. In other words, the idea is that digitalization is accelerating the pressure that the companies already have. In order to deal with the digital transformation, companies have to invest in new capabilities and abandon old business models. All of this should, in principle, speed up productivity growth. But what we are actually observing is that productivity in the modern economies already experienced a prolonged slowdown since the 60s that has accelerated after the financial crisis, and that has remained the same also during the COVID crisis. Now, why is this evidence so puzzling? The evidence is so puzzling because we are living in the age of digital disruption, where we deal every day with big data and the services that can be provided using artificial intelligence, consumers are able to access free goods and so on and so forth. In other words, the main idea is those digital technologies actually offer a vast potential to enhance welfare and living standards by raising, for example, product and service quality and variety. This should have a positive impact on productivity growth. However, this is not what we actually observe in the data. The empirical research, that actually focuses on the factors that drive the productivity trends, is still observing a persistent slow down in productivity growth. Now, among the possible reasons for this prolonged and persistent slow down, is, of course, the idea that the fusion of the digital technologies might be yet incomplete and heterogeneous across sectors and countries. Most economies all over the world are not yet experiencing the benefits of digital transformation. One of the possible reasons for these asymmetric outcomes across countries is that there may be slow and difficult technology. adoption and low investment following the global financial crisis, but also because of the most recent shocks. Now, if we try to focus on the role of the digital transformation, the main idea is that, and this is where the paradox is, is that the digital technologies actually support innovation and should generate efficiencies and facilitate knowledge spillovers, helping to speed up productivity growth. But let's try to figure out what the main mechanisms are to which the digital transformation is expected to boost productivity growth? Well, essentially, the mechanism through

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Digital transformation and productivity trends: the new paradox

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