Fact of the Week: Manufacturers That Adopt More Digital Technologies Are More Likely To Export

Source: Joachim Wagner, “Digitalization Intensity and Extensive Margins of Exports in Manufacturing Firms from 27 EU Countries - Evidence from Kernel-Regularized Least Squares Regression,” Working Paper Series in Economics, University of Lüneburg, Institute of Economics, no. 428 (April 2024).

Commentary: A recent working paper by Joachim Wagner analyzed how adoption of digital technologies affects manufacturing firms’ export activities in the European Union. Wagner’s past work emphasized the effects of individual technologies, such as robots and cloud computing. In this case, the focus is on overall adoption of digital technologies. The study looked at over 2,300 manufacturing firms among 27 European Union (EU) member states. The data on firm characteristics and activities came from the Flash Eurobarometer 486 survey. The author used that survey’s yes/no questions regarding adoption of seven different digital technologies including, but not limited to, artificial intelligence, smart devices, and big data analytics. The responses were then used to develop a proxy variable for digitalization intensity, the value of which ranged from zero to seven based on an individual firm’s survey responses. The study looked at results for seven different regions. Namely, those regions were the EU member countries, European countries outside the EU, North America, Latin America, China, the rest of Asia, and Africa and the Middle East together. The study had two major findings. In particular, manufacturers with greater digitalization intensity are more likely than non-adopters to export, and they also export to more regions.

When looking at export activity, the authors found that a 1-unit increase in the proxy variable for digital intensity was associated with a 5.8 percent increase in the likelihood that a firm would export. That is, a manufacturer becomes 5.8 percent more likely to export for each additional digital technology it adopts. When looking at individual regions, the “premium” for digitalization intensity was highest for exports to other EU member countries. In particular, manufacturers became 5.8 percent more likely to export to other countries within the EU for each additional digital technology they adopted. Additionally, manufacturers became 4.5 percent more likely to export to European countries outside the EU, 2.7 percent more likely to export to North America, 1.8 percent more likely to export to Latin America, 2.1 – 2.4 percent more likely to export to China or elsewhere in Asia, and 2.6 percent more likely to export to Africa and the Middle East, for each additional digital technology they adopted.

When looking at the diversity in export destinations, the authors found that, on average, manufacturers exported to 0.15 more regions for each additional digital technology they adopted. To be clear, that result is merely an average and would include some firms that export to only one of the aforementioned regions along with some that would export to all seven of them. Nonetheless, it suggests that manufacturers that adopt a greater number of digital technologies export to more regions than non-adopters. Such findings highlight the role that digitalization plays in enhancing firms’ international competitiveness. As such, governments should design their economic policies with the goal of incentivizing firms to adopt digital technologies that can improve their competitiveness.