digitalization, wages, and employment, with a focus on the automation of tasks and job polarization. Section 4 reviews the evidence on digitalization and access to markets, with a focus on prices and financial inclusion. Section 5 reviews the evidence on digitalization and public finances, with a focus on government revenues and spending. Section 6 concludes.

# **2. Digitalization and productivity growth**

In the neoclassical growth model, the role of technological change is reflected in the growth of total factor productivity (TFP).<sup>4</sup> Technology use can also raise labor productivity to the extent it increases the accumulation of capital. Early endeavors to measure the economy-wide effect of ICT adoption on productivity used data for the United States and found little or no effect (Berndt and Morrison 1995; Jorgenson and Stiroh 1995; Loveman 1993; Oliner and Sichel 1994). These results underscored the “productivity paradox” that Robert Solow first described in the late 1980s. As the data revealed a clear improvement in U.S. productivity in the late 1990s, the narrative shifted. This is evident from the growth accounting literature and from econometric evidence at the industry and firm levels (Brynjolfsson and Saunders 2010; Draca, Sadun, and Van Reenen 2009). However, these studies neither examine the channels through which ICT use improved productivity nor consider the second wave of digitalization.

## **_2.1 Does digitalization enable better matching of supply and demand?_**

The spread of the internet and digital platforms has improved productivity by enabling more efficient matches between buyers and sellers, as well as between firms and workers. Productivity gains are reflected in lower prices in advanced economies for a variety of products sold online— including books, insurance, air travel, and automobiles (Brynjolfsson and Smith 2000; Brown and Goolsbee 2002; Orlov 2011; and Scott Morton, Zettelmeyer, and Silva-Risso 2001). There is evidence of productivity gains in matching service providers and job seekers too. Based on firmlevel data from ten OECD countries across four industries—hotels, restaurants, taxis, and retail trade—Bailin Rivares et al. (2019) find that the average service provider in countries with high online platform development experienced larger productivity increases vis-à-vis the average service provider in countries with low online platform development. Evidence from job platforms in the United States and Germany suggests that online job searchers were re-employed about 25 percent faster than non-online job searchers (Gürtzgen et al. 2021; Kuhn and Mansour 2014). In Norway, the use of online platforms is estimated to have reduced the duration of job vacancies and the share of firms with unfilled vacancies (Bhuller, Kostøl, and Vigtel 2020).<sup>5</sup> For developing economies, much of the evidence of ICT lowering the costs of matching buyers and sellers has been shown in studies of international trade. Based on data for 60 countries, Freund and Weinhold (2004) find that a 10-percentage point increase in growth of web hosts for the

> 4 Numerous cross-country empirical studies have found a positive association between the adoption of ICT (computers, hard disks, internet cables, and the like) and growth in GDP or GDP per capita (e.g., Colecchia and Schreyer 2002; Niebel 2018; Stanley, Doucouliagos, and Steel 2018; Vu 2011). Others have also found a causal relationship between broadband penetration and growth (Arvin and Pradhan 2014; Czernich et al. 2011; Edquist et al. 2018).

> 5 Despite the widespread availability of products on e-commerce platforms, substantial price dispersion remains due to remaining search costs, partial product information, lack of competition, and inefficient design of online platforms (Baye, Morgan, and Scholten 2004; Choi, Dai, and Kim 2018; Dinerstein et al. 2018; Einav et al. 2015; Smith and Brynjolfsson 2001).

7