New Report: Digital Platforms Increase European SMEs’ Productivity

A new report (available here) published today by the Center for the Governance of Change at IE University, and developed by authors Luis Garicano and Juan Santaló, documents a systematic positive correlation between platform adoption and labor productivity across European companies from all countries and industries studied.

Notably, this correlation is higher for smaller firms. On average, platform adoption is associated with an increase in labor productivity of between 3.6% and 5.3%. For smaller firms, platform adoption is associated with an almost doubled increase of labor productivity, of between 6.4% and 10.5%. These results hold after accounting for endogeneity bias, which suggests a causal relationship between platform adoption and productivity.

Furthermore, the adoption of new technologies is positively associated with a higher probability of becoming an exporter in the next year, a result consistent with the increases in productivity driven by platform use extending the market reach of firms.

Luis Garicano, Professor of Public Policy at the LSE, and Juan Santaló, Professor of Strategy at IE University’s Business School, find that digital platforms reduce the requirements for successful digitalization by not only eliminating the large capital investment required to build in-house solutions, but also reducing the needs for complementary investments in human capital and managerial skills required to maintain and manage those solutions.

Therefore, the report concludes that digital platforms allow smaller firms to contract the IT investments of larger firms and enjoy, through the platforms, the benefits of the AI and big data revolution.

Profs. Garicano and Santaló used data from the European Investment Bank Investment Survey (EIBIS), an annual semi-panel survey of around 12,000 EU nonfinancial corporations conducted since 2016. EIBIS is a unique dataset measuring firm-level adoption of modern digital platforms over time. A new module on technology adoption was introduced in 2019, where firms were asked about the use and use intensity of advanced digital technologies that are specific to their sector.

The report provides the context and non-technical explanation and results of the research paper “Technology Equalizers: How Digital Platforms Level the Playing Field For Small Firms,” by Luis Garicano, Juan Santaló and Christopher Weiss from the European Investment Bank.