Digital adoption in Europe and the United States

• Author: Désirée Rückert and Christoph Weiss, European Investment Bank Reinhilde Veugelers, KU Leuven, Bruegel and CEPR
• Pages: 734-749

734

1. Introduction

2 Andrews, Criscuolo and Gal (2016) def‌ine global frontier f‌irms as the top 5 % of f‌irms in terms of labour productivity levels, within

each two-digit sector and in each year, across all countries since the early 2000s. All other f‌irms are def‌ined as laggards.

The adoption of digital technologies in the

business sector is spreading rapidly. Because

of its transformative impact on the economy

and the labour market, from both a creative

and a destructive angle, digitalisation is being

vigorously discussed by economists and

policymakers. On the one hand, there have

been numerous optimistic statements that

digitalisation will boost growth and productivity.

Yet, while digital technologies are expected to be

the drivers of economic growth and the Fourth

Industrial Revolution, so far there has been

little hard evidence of a signif‌icant productivity

boost. More than 30 years aer Robert Solow’s

(1987) statement ‘you can see the computer

age everywhere but in productivity statistics’,

productivity growth in advanced economies

remains subdued. At the same time, many people

fear that digital technologies can be a source of

disruption, leading to a more polarised economic

structure, with the benef‌its concentrated in a few

‘superstar f‌irms’, while many f‌irms and workers

will be on the losing side and will drop out.

Several recent studies provide evidence of this

polarisation and ‘winner-take-all’ markets linked

to the use of digital technologies. Andrews,

Criscuolo and Gal (2016) show an increasing

productivity gap between f‌irms at the global

frontier and laggard f‌irms2. The superstar f‌irms

at the global frontier are typically larger, more

innovative and have higher rates of digital-

technology adoption. There is also evidence

of rising concentration (Autor et al., 2017)

and increasing f‌irm mark-ups (De Loecker

and Eeckhoudt, 2017). In particular, mark-

ups are rising among f‌irms in the highest

decile of distribution of mark-ups within their

Summary

The growing digital divide in the global

corporate landscape between the technology

leaders and laggards has implications for

rising productivity polarisation. This raises

concerns in policy debates that the EU may

be falling behind in the digital technology

race, although there is little large-scale,

f‌irm-level evidence on digital adoption

for the EU and the US. With its innovative

approach, this chapter tries to contribute to

a more evidence-based policy discussion on

the digital divide.

Using a new survey on digital adoption by

f‌irms in the EU and the US, this chapter

identif‌ies digitalisation prof‌iles based on

the current use of digital technologies and

future investment plans in digitalisation. The

analysis conf‌irms the trend toward digital

polarisation and a growing digital divide in

the corporate landscape with, on one side,

many f‌irms that are not digitally active and,

on the other side, a substantial number of

digitally active f‌irms forging ahead. Old

small f‌irms, with fewer than 50 employees

and over 10 years old, are signif‌icantly more

likely to be persistently digitally non active.

They are also less likely to be innovative.

735

CHAPTER 14

industry, which is consistent with winner-takes-

all patterns (Diez et al., 2018). These trends

tend to be more pronounced in the sectors

where digital technologies – especially digital

services – are developed or intensely adopted

(Calligaris, Criscuolo and Marcolin, 2018).

In digital services, the leading companies –

including ‘big tech’ f‌irms, such as Alphabet

(Google’s parent company), Apple, Facebook,

Microso, Alibaba, and Huawei – are typically

from the United States or China. European

f‌irms are not present among either the big tech

or the leading digital R&D investors that push

the frontier of digital technology (EIB, 2018;

Veugelers, 2018). Evidence of the EU lagging

behind is mounting, especially in the services

sector, which is correlated with subdued

productivity growth in the EU (EIB, 2018).

Growing digital polarisation in the global

corporate landscape between the technology

haves and have-nots has implications for the

rising polarisation of productivity. This raises

concerns in policy debates that the EU may

be falling behind in the digital technology

race, being trapped on the wrong side of the

digital technology divide. Furthermore, it raises

the following questions: Are EU f‌irms stuck as

digital-technology-have-nots while US tech

f‌irms are forging ahead? What does this imply

for the EU’s innovation capacity?

Manufacturing Services

Region

EU28 456 432

West and North Europe 198 198

South Europe 122 89

Central and East Europe 146 145

US 411 389

Northeast 93 83

Midwest 126 136

South 106 82

West 86 88

Size

Micro (5-9) 143 172

Small (10-49) 291 333

Medium (50-249) 287 223

Large (250+) 146 93

Figure 14-1 Survey sampling in the EIB Digital and Skills survey

Science, research and innovation performance of the EU 2020

Source: Authors’ own elaboration

Note: West and North Europe: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Luxembourg, the Netherlands,

Sweden, and the United Kingdom. South Europe: Cyprus, Greece, Italy, Portugal, and Spain. Central and East Europe: Bulgaria,

Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. US regions according to US Census

Bureau geography divisions.

Stat. link: https://ec.europa.eu/info/sites/info/f‌iles/srip/2020/partii/chapter14/f‌igure_14-1.xlsx