Developing digital dividends: digital-economy-oriented industrial policy, digital technology innovation, and firms’ productivity

This paper examines the impact of digital economy-oriented industrial policy on firm productivity using a difference-in-differences (DID) approach with data from China's listed firms between 2011 and 2021, treating National Digital Economy Innovation and Development Pilot Zones (DEPZs) as a quasi-natural experiment. We employ a keyword-matching method to link firm-level digital technology innovation (DTI) with China's granted patents. Our findings reveal a positive association between DEPZ policy and firms' total factor productivity (TFP). The DEPZ policy implementation has resulted in an average increase of 0.0421 units in productivity per unit of production factor for in-zone firms. Regarding the mechanism, implementing DEPZ policy significantly enhances TFP through DTI improvements. Specifically, DTI driven by invention patents has a substantial pro-productivity effect, while utility model and design patents are trivial. Furthermore, firms in digital-industrialization sectors exhibit significantly higher TFP compared to those in industrial-digitalization sector.