The Matthew effect: Evidence on firms’ digitalization distributional effects

Abstract

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This paper explores the relationship between Information and Communication Technologies (ICT) diffusion and labor productivity at the firm level. We propose a model that explains labor productivity based on firm-specific characteristics (sector, size, location and year fixed effects), on the level of diffusion of digital technologies, and on human capital. We use quantile regression techniques to gain a more precise understanding of the association between ICT's diffusion and labor productivity for a heterogeneous firm landscape. Our results show that more productive firms are able to extract higher gains from digitalization than low productive ones, which exacerbates productivity differences between them. This requires from a tailor-made policy agenda to promote firm convergence, focused on helping firms to extract the most of digitalization.