An Analysis of Digitalization and Firm Performance in Finland’s Private Service Industries

Natalia Kuosmanen, Mika Pajarinen and Almas Heshmati ()

No 117, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: Abstract The service sector is undergoing rapid changes attributed to digitalization. This study examines the relationship between digitalization and the performance of the Finnish private service firms from 2015 to 2021 using linked employer-employee data, financial data and an IT usage survey. Our descriptive and regression analyses reveal significant variability in the level and areas of digital adoption across service industries. Information and communication, and professional activities are found highly digitalized, while accommodation and food service activities, and transportation and storage lag in digitalization intensity. Additionally, we find a strong positive correlation between firms’ digitalization and revenues, particularly for firms with higher digital intensity. This correlation persisted throughout the COVID-19 pandemic. We also observe a positive correlation between digitalization and productivity in the early years, but more recent data suggest a weakening of this association, possibly due to increased digital adoption among less productive firms during the pandemic. Finally, our analysis indicates that larger firms, or those with a larger market share or international activities, tend to have higher levels of digitalization. Thus, investment in digitalization is recommended to enhance service sectors performance.

Keywords: Digitalization; Firm performance; Productivity; Private service industry; Finland (search for similar items in EconPapers)
JEL-codes: L25 L80 L86 O14 O33 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2024-06-11
New Economics Papers: this item is included in nep-bec, nep-eff, nep-sbm and nep-tid
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