How does firms' broadband adoption affect regional TFP in Italy?

Abstract

In the literature, the positive effect of ICT on labour productivity and, in general, economic growth is vast and well consolidated. This paper wants to go beyond the general term of ICT and look inside the "black box." In particular, broadband adoption among Italian firms is critical for productivity. Hence, we focus on broadband adoption and internet facilities and how they affect the firms' total factor productivity in the Italian business sector firms at NUTS2 over the period 2003-2018. Italy is indeed still characterized by a robust North-South divide. Our question is: can we exploit the digital advantage for filling the productivity gap? To answer, we are going to use a classical two-stage approach. In the first one, the TFP is filtered out using both a semi-parametric approach and a parametric one (spatial ML). The second step investigates its determinants, using broadband firms' adoption as a covariate in an ECM augmented by spatial spillovers, controlling for competitivity, internationalization, and human capital. Our results show a positive relationship between TFP and broadband adoption (cointegration), including regional spillovers; this positive effect spreads to GVA. Moreover, our results show that digitalization makes Southern regions more resilient to external shocks.