Does ICT create a new driving force for manufacturing?—Evidence from Chinese manufacturing firms

Abstract

The Internet has changed the global economic landscape. In particular, the fast-changing Information and Communication Technology (ICT) has directly led to a far-reaching impact on the production and operation of firms. Many previous studies have discussed the relationship of ICT and the total factor productivity (TFP) of firms, but failed to reach a consistent conclusion. This paper, based on the data of Chinese listed manufacturing firms from 2010 to 2019, explores the impact of ICT on manufacturing firms' TFP and its mechanism, and concludes that ICT have positive correlation with the TFP of manufacturing firms. According to the estimated results of this paper, TFP will increase by about 1.8 % for every 1 % of additional ICT investment. Through channel analysis, this paper finds that the positive effect can be achieved through the following four channels: cutting information search costs, enhancing information processing capabilities, reducing internal capital misallocation, and promoting R&D efficiency. This paper is a supplement to research on firm TFP, provides new micro-evidence for exploring the relationship between ICT and TFP of manufacturing firms, and brings important implications for understanding the role of ICT in firm production activities.