DIGITIZATION AND TOTAL FACTOR PRODUCTIVITY: EVIDENCE FROM CHINA

This study calculates China's provincial total factor productivity (TFP) and decomposition indexes. Then, a system of indicators is constructed to measure digitization, and an empirical analysis is conducted. The results show that (1) digitization can significantly improve TFP, especially technical efficiency, largely due to the increase in factor allocation efficiency and the quality of technological innovation resulting from digitization, a finding that remains valid even after a series of robustness tests. (2) The effect of digitization on the improvement of TFP is more pronounced in the central and western regions of China than in the east and more pronounced when economic development is in the service stage. The existence of a digital divide can diminish the positive effects of digitization. The regression results by industry show that digitization has a more significant positive impact on TFP in the secondary and tertiary industries than in the primary industries. (3) Further analysis shows that the process of digitization in raising TFP is nonlinear and that the positive effect of digitization on TFP is stronger when the level of industrial structure crosses the threshold. The findings of this paper bear some beneficial policy implications.