Productivity divergence and the role of digitalisation

Abstract

Productivity development in general has been extensively studied. Behind the aggregates, there are a variety of firms which potentially show substantial productivity differences. The productivity distribution is, to a large extent, unexploited in a Swedish context. This paper investigates productivity development in different parts of the productivity distribution, trends in the rate of mobility of the least productive firms to the upper productivity ladder, and whether differences can be observed depending on the digital intensity and the intangible asset intensity of the sector. We find increases in productivity differences over time, with greater increases in digital-intensive sectors and sectors characterised by a large share of intangible assets. Although there is a positive catch-up rate of laggard firms, the catch-up effect in the above sectors is found to decline over time, which is a sign of increasing barriers to the adoption and diffusion of new technology and knowledge over time. Moreover, the catch-up is stronger for young firms and firms with higher levels of managerial quality. Policies designed to promote the absorptive capabilities, firm dynamics and knowledge diffusion can be effective tools to promote strong catch-up of laggard firms as well as productivity growth in general.