Measuring digitalization effects in China: A global value chain perspective

Abstract

Measuring the digitalization effect, especially in traditional industries, is crucial for both economic researchers and policy makers. We quantify the effect and the rate of digitalization at the sectoral level in China from the perspective of production on the basis of the Inter-Country Input–Output (ICIO) accounting framework, which allows us to account for digitalization in traditional industries through value chains. Our results indicate that digitalization has developed rapidly in China and has become an important path for the transformation and upgrading of traditional industries. We show that global value chain (GVC) activities have significant digitalization characteristics in China and that digitalization promotes the sectoral reconstruction of China's GVCs. By constructing a GDP growth account that is consistent with our digitalization measure to capture the inter-temporal impact of digitalization through the investment channel, we find that the growth in digital capital input contributes to GDP growth in China and several world major economies and that the effect can be significant for developing countries that are experiencing rapid growth in investment.