Abstract

     This paper studies the relationships among the use of digital communication technologies, innovation performance and productivity, using an extended version of the Crepon-Duguet-Mairesse (1998) model, for a sample of micro and small enterprises (MSEs) in a middle-income country, South Africa. Based on the results of an original survey carried out in 2019, we investigate these links for a sample of 711 manufacturing MSEs located in Johannesburg. We estimate the relationships sequentially, firstly estimating the relationship between digitalization and innovation, and secondly the relationship between innovation and productivity. Our results show that selected digital communication technologies including the use of social media and of a business mobile phone for surfing the internet have a positive effect on innovation, and that innovation conditional on the use of these technologies has a positive effect on labor productivity. The findings suggest that public programs aimed at fostering inclusive digitalization must consider the types of digital technologies that are most accessible and beneficial to small firms, including those operating informally.

Introduction

     Digitalization is transforming economies across the world and altering the way firms develop and market goods and services. It holds many promises to spur innovation, generate efficiencies, and improve economic prospects (Dahlman et al., 2016). However, the dynamics of digitalization have not been equally spread across regions, over time, or even across firms within countries. While differences in digitalization between high- and low-income countries remain large, spurred by the declining costs of broadband from the mid to late-2000s and the increasing ease of internet access with inexpensive mobile phones, some developing countries like South Africa have expanded their digital economies exponentially over the past decade or so.1 This paper explores the effects of the adoption of digital communication technologies on firm-level innovation and productivity in South Africa, focusing on the predominant segment of micro and small enterprises (MSEs), which includes firms operating informally.

Conclusion

     This paper explores the relationship between digitalization, innovation, and productivity for a sample of micro and small manufacturing firms in Johannesburg, South Africa. The survey of MSEs on which this study is based includes indicators of the use of social media and the use of a business mobile phone for surfing the internet, communicating with customers, and accessing markets through online sales. To our knowledge, it is the only survey in South Africa that specifically measures the adoption of these digital technologies by micro-enterprises, including non-registered businesses. Our findings show, firstly, that selected digital communication technologies, including the use of social media and using a mobile phone to browse the internet, have a positive effect on innovation. These results support the literature arguing that social media and using the internet can enable innovation by supporting interaction and knowledge exchange among firms and with consumers. Secondly, innovation conditional on the use of these digital communication technologies has a positive effect on labor productivity. This result is consistent with the large literature cited above in both developed and developing countries, showing a positive relationship between innovation and productivity.