Adoption of Industry 4.0 technologies and total factor productivity: firm-level evidence from emerging economy

Purpose The Industry 4.0 (I4.0) revolution originated in developed countries and has now been promoted worldwide as a powerful tool for improving productivity. However, adopting I4.0 technologies poses significant challenges, especially for emerging economies that are far from the I4.0 frontier. In the context of emerging economies, this paper aims to explore the impact of adopting I4.0 technologies on firms’ total factor productivity (TFP) and its mediation channels. Design/methodology/approach Using panel data for 2,928 firms in China’s manufacturing industry during the period 2010–2022, this study adopts fixed effects regression model to test the theoretical hypotheses. Endogeneity issues are addressed by the instrumental variable approach and propensity score matching. Findings The results show that adopting I4.0 technologies can significantly improve emerging economy firms’ TFP, and this effect is achieved by promoting technological innovation and alleviating financial constraints. Furthermore, the findings indicate a heterogeneity in the effects of I4.0 technology adoption. When top managers are long-term oriented, firms are state-owned, industry competition pressure is low or regional manufacturing innovation capability is strong, the positive impact of I4.0 on TFP is weakened. Originality/value This paper is one of the first attempts to offer empirical evidence about whether and how the adoption of I4.0 technologies boosts TFP growth among firms in emerging economies. The study expands on the organizational performance consequences of I4.0 adoption and provides implications for decision-makers in developing countries in implementing I4.0.