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Technology Adoption Raises Services Firms’ Productivity

Technology adoption raises services firms’ productivity

PHILEXPORT News and Features

The adoption of digital technologies increases services firms’ productivity and structural reforms that open service sectors to greater competition can spur productivity growth, a World Bank report said.

World Bank’s East Asia and the Pacific Economic Update October 2023 said evidence from
the Philippines shows that services firms who adopt digital technology increase their productivity, raise wages and increase their value-added.

“The productivity increases are larger for adoption of IT (information technology) or data and software capital, than the use of e-commerce,” it said.

The report underscored the impact of the diffusion of digital platforms.

It cited an earlier study indicating these platforms present a competition shock for incumbent firms in the sectors in which they operate, such that e-commerce platforms affect traditional wholesalers and retailers by offering customers new ways of connecting with suppliers.

In the case of the Philippines’ service sectors, online platforms diffusion is associated with higher productivity and growing sales of the firms in the sector in which platforms operate, it said.

“Platform diffusion also affect(s) firms that use their services, increasing their productivity and raising their wages. As the impacts of platform competition ripple through supply chains, we find the magnitude
of productivity gain is triple the size of the direct own-sector effect,” it added.

The World Bank report said structural reforms that open service sectors to greater competition can spur productivity growth in services.

It said increased openness in services implies increased foreign presence, foreign entry and competition between foreign and domestic providers.

“This competitive dynamic is expected to deliver better and more reliable provision of existing services,
the introduction of new varieties of services, and competitive pricing in the services sector,” the report said.

“These are the main channels through which service trade liberalization can lead to increased productivity, value added, and jobs in the services sector, and improved economy-wide performance through
inter-linkages between the productive sectors,” it added.

The report said given the growing role of services in manufacturing, these positive productivity impacts extend beyond the direct impact on services to manufacturing firms that use services. 


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