Spillovers in ICT adoption from formal to informal firms: Evidence from Zambia

This paper examines spillovers in the use of digital technologies from formal to informal businesses by exploring differences in geographic proximity. Using a unique set of geocoded data from the 2019 World Bank Enterprise Surveys in Zambia, the findings indicate that geographic proximity to formal firms is associated with a significantly higher likelihood of digital adoption by informal businesses. The finding holds for various types of digital technologies, including computers, tablets, cell phones, and mobile money, for various measures of geographic proximity, and for different empirical specifications that disentangle proximity to formal firms from other confounding factors. Further, the relationship between geographic proximity to formal firms and digital adoption by informal businesses varies by the owner's level of education and business age. The results also suggest that these spillovers in the adoption of digital technologies can be explained by competition in the local market and learning through enhanced interactions.