Quantifying productivity gains from universal use of email and website

This paper quantifies the effect of digital solutions such as using an email to connect with clients and suppliers or having a business website on revenue-based total factor productivity (TFPR). Using a methodology that addresses the problem of endogeneity of inputs choices and allows for an endogenous revenue-based productivity process that depends on the use of digital solutions, the paper estimates the marginal effects of using email to connect with clients or suppliers and develop a business website on TFPR. The paper also simulates global TFPR gains 68 developing countries could obtain by fostering universal use of digital solutions to run a firm and explores the role of managerial capabilities on materializing the benefits from the use of digital solutions. Our results show that the contribution of digital solutions to productivity is larger for firms that have managers with the necessary capabilities to implement the organizational changes needed for digital solutions to have the expected effects on TFPRs (e.g., large, old, foreign-owned, and exporters). On average, less developed regions like Middle East and North Africa (MENA), South Asia (SA), and Sub-Saharan Africa (SSA) are the ones that could benefit the most from universal usage of email to connect with clients or suppliers or having a business website. However, there is a lot of variation in simulated TFPR gains from universal use of digital solutions both across and within regions. TFPR productivity gains from granting universal website range from a regional mean of 2.10% for Latin America & Caribbean (LAC) to 5.79 for East Asia & Pacific (EAP). Intra-regional dispersion is relatively low in MENA and LAC, but high in EAP and Europe and Central Asia (ECA). Simulation results show large TFPR gains for countries like Botswana (15.66%), Azerbaijan (13.58%), Lao (11.65%) and Uzbekistan (11.55%) to mention some (see Table A.1 in appendix for all the countries). The lowest gains are found for Guatemala (0.29), Argentina (0.21), Croatia (0.21), Slovenia (0.11), Czech Republic (0.04), Honduras (0.03), and Slovakia (0.00). TFPR productivity gains from fostering universal use of email to connect with clients or suppliers are large in MENA (3.08%), followed by SA (2.23%), and SSA (1.80%). Dispersion in TFPR gains are high in ECA, SA, and SSA. Simulations show large TFPR gains for countries like Uzbekistan (7.62%), Albania (6.70%), Angola (5.70%), Kyrgyzstan (5.32%), and Afghanistan (4.98%). The lowest gains are observed for Honduras, Czech Republic, Argentina, South Africa, Estonia, and Slovakia.