Promoting Digitalization without Subsidies: Evidence from a U.K. program

Internal seminar for researchers

Abstract: We examine the effects of a U.K. government program that provided small and medium-sized enterprises (SMEs) with training and knowledge about the use of digital technologies. We employ a novel panel dataset of web technologies adopted by firms. Our identification strategy is based on a matched difference-in-differences estimator that exploits the quasi-exogenous spatial variation of areas that benefited from the government program. Our results show that following the launch of the program, treated SMEs are more likely to increase their web presence, adopt more sophisticated digital technologies, and enlarge their boundaries through e-commerce. Further, the program seems to reduce the digital divide between SMEs and large companies, and to make digitalization possible in more remote geographical locations beyond the urban areas. The increased digitalization has significant and positive effects on employment growth, operating performance and productivity, and likelihood of survival.