The impact of the digital economy on China’s economic growth and productivity performance

Abstract

ABSTRACT China’s digital economy experienced a rapid development over the past two decades. How can we systematically measure the contribution of the digital economy to China’s economic growth? Has the digital economy contributed to an increase in China’s total factor productivity? This paper analyzes the impact of the information and communication technology (ICT) development on China’s economic growth since its WTO accession in an aggregate production possibility frontier framework. Our empirical analysis shows that the digital economy has been the most significant contributor to China’s economic growth and productivity improvements over the past two decades. Nevertheless, due to severe capital misallocation across industries and persistent inefficient performance of some non-ICT industries, industries with high investment growth have not been matched by industries with high TFP growth.