The effect of the digital economy on total factor productivity in European regions

Abstract

The digital economy, most backed by proliferation of information and technology (ICTs), provides impressive opportunities for firms, regions and countries productivity growth. This paper investigates the effect of the digital economy proxied by e-government, e-commerce, and household internet users at home on total factor productivity-measured using Törnqvist index across 182 EU27 NUTS2 regions over the period 2006 to 2020. For robustness of the results, we also use Malmquist index method. By deploying system GMM estimation, we find that digital economy has positive and significant impact on total factor productivity across the European regions. Therefore, public policies should support investment in digital infrastructure, and improve the digital literacy across laggard regions of Europe. Such policies would remove digital inequalities across European regions and increase total factor productivity towards EU social and economic cohesion.