Productivity Paradox in Africa: Does Digitalization Foster Labor Productivity in African Economies?

• Published in: Journal of the knowledge economy Vol. 16; no. 2; pp. 8374 - 8393
• Main Authors: Karacuka, Mehmet, Myovella, Godwin, Haucap, Justus
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.06.2025; Springer Nature B.V
• Subjects: Broadband; Cloud computing; Customer relationship management; Digital economy; Digital technology; Economic growth; Economic Policy; Economics; Economics and Finance; Entrepreneurship; Information and communications technology (ICT); Innovations; Internet; Labor force; Labor productivity; Manufacturing; Productivity paradox; R & D/Technology Policy; Skills; Software; Sub-Saharan Africa; Technology adoption; United States > US; Africa; Information and communications technology (ICT); Labor productivity; Digital economy; Sub-Saharan Africa; Productivity paradox
• ISSN: 1868-7873; 1868-7865; 1868-7873
• DOI: 10.1007/s13132-024-02200-8

Abstract How the advancement of information and communications technologies (ICT) and digitalization affect labor productivity is subject of an ongoing debate. While parts of the literature find the expected positive effects, other studies have found no effect, resulting in the so-called productiviy paradox. As most of the studies have focused on economically advanced economies such as OECD countries, evidence for less developed economies has been sparse. We use a digitalization composite index from a balanced panel of 40 Sub-Saharan African (SSA) economies, using data from 2006 to 2021, to assess the effect of digitalization on aggregate labor productivity in SSA economies. We employ generalized least squares (GLS) and system generalized methods of moments (GMM) methods to capture the effects of digitalization on labor productivity levels in agriculture, manufacturing, and service sectors. Our results show a weak association between digitalization and overall labor productivity. However, when sectors are analyzed separately, digitalization has a positive effect on labor productivity in agriculture and manufacturing sectors, whereas we find evidence for the productivity paradox in the service sector, with even a negative effect of digitalization on labor productivity.