Fact of the Week: Adoption of “Industry 4.0” Technologies Increased Italian Firms’ Productivity by 3.7 Percentage Points
Source: Antonio Ughi and Andrea Mina, “Digital Advantage: Evidence from a Policy Evaluation of Adoption Subsidies,” LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy, no. 2023/41 (November 2023).
Commentary: A November 2023 working paper by Antonio Ughi and Andrea Mina analyzed the effect of advanced technology adoption on manufacturing firm performance. Using data from Italy’s Ministry of Economic Development and the Italian Chambers of Commerce, the study looked at the impacts of “Nuova Sabatini” program, which aims to incentivize adoption of machinery and equipment by small and medium-sized businesses. Since 2017, an amended version of the program has focused on incentivizing adoption of “Industry 4.0” technologies, which includes robotics, artificial intelligence, the Internet of Things, and cloud computing.
When looking at the effects of Industry 4.0 adoption, the authors found positive effects on labor productivity, defined as value-added output per worker. Specifically, firms that adopted Industry 4.0 technologies experienced, on average, a 3.7 percentage point increase in labor productivity relative to non-adopting firms. Notably, the increase in productivity from investing in Industry 4.0 technologies was greater than the productivity boost from “ordinary” capital investments that could not be considered 4.0 technologies. In this case, the authors found that adoption of “ordinary” capital raised labor productivity by about 1.8 percentage points. In a second part of their analysis, the author also found that Industry 4.0 technologies increased total factor productivity (TFP) by about 4.7 percentage points and sales by nearly 18 percentage points. When looking specifically at “low-tech and less knowledge intensive” firms, Industry 4.0 increased labor productivity by 5.6 percentage points and TFP by about 5 percentage points. With regard to effects on workers, the authors found no evidence of an increase in unemployment arising from technology adoption. Additionally, they found that Industry 4.0 adoption was associated with slightly higher average wages. As such, these findings suggest that well-crafted technology policies can play a significant role in spurring economic growth arising from adoption of advanced technologies.
