The Impact of Digital Technology on Economic Growth and Productivity, and its Implications for Employment and Equality: An Evidence Review

Abstract

As digital technology has begun to ‘eat the world’ it has also influenced the way that humans interact and transact with each other. Thus, it has inevitably had an effect on global, regional, national and local economies. This Evidence Report reviews the literature assessing the economic impact of digital technologies – namely information communication technology (ICT) – on economies and people. In terms of the economic effects of digital technology on economies, this literature review summarises its relationship with economic growth and productivity. Although increases in ICT infrastructure/equipment investment and increased ICT adoption tend to be strongly correlated with economic growth and productivity, causality is yet to be resolved, and the potential for endogenous, simultaneous and reverse causality remains. In other words, there is still the possibility that the economic impacts of the internet are caused by a third variable, that the economic impacts lead to internet adaption at the same time that internet adaption leads to economic impacts, and that it is economic growth that causes internet adaption rather than vice versa. Furthermore, the correlations tend to be highly heterogeneous – different across space and time – suggesting that the relationship is not always given. The review also summarises the literature concerning the effects of digital technology on employment and inequality.