Digital technology diffusion: A matter of capabilities, incentives or both?

This paper uses data on digital technology usage covering 25 industries in 24 European countries and Turkey over the 2010-16 period to explore the covariates of industry-level digital adoption by firms across two broad sets of technologies – cloud computing and back and front office integration. The focus is on factors that potentially affect firms’ capabilities and incentives to adopt – including the availability of enabling infrastructures (such as high-speed broadband internet), managerial quality and workers skills, as well as product, labour and financial market settings. Using a difference-in-difference approach we show that a number of these factors relate to technology adoption in economically sizeable ways. Diffusion of high-speed broadband internet correlates positively with adoption. Low managerial quality, lack of ICT skills and policies curbing market access, competition in services, hiring and firing and availability of venture capital are associated with lower digital technology adoption.