The competitiveness of European industry in the digital era

We document how recent productivity trends in European industry are related to the adoption of information and communications technologies and related investments. The aggregate productivity of manufacturing has substantially recovered in Europe, but its contribution to overall country productivity is small because the manufacturing sector is losing ground in terms of share of hours worked throughout the EU. Greater growth in IT capital stock is associated with better productivity performance, in terms of both labour productivity and total factor productivity. However, all indicators at industry or country-level are by definition averages, which reflect both leading and lagging firm performance and thereby could lead to so-called aggregation and dispersion biases. The effects of ICT capital investments are on average positive and significant for productivity, but these are essentially driven by the most productive companies Thus, while policies aimed at increasing digitalisation and the development of ‘Industry 4.0’ are powerful tools to foster the competitiveness of EU industry, they are also likely to increase the gap between the most successful companies and those left behind.