impact of ICT on productivity than what the standard neoclassical growth model would predict, and it is attributable, at least in part, to investments in complementary intangible capital.

Brynjolfsson, Rock, and Syverson (2021) find that the productivity growth resulting from ICT use was initially underestimated but subsequently overestimated when the benefits of intangible investments were realized with a lag. This “productivity J-curve” can be largely attributed to the poor measurement of intangible capital in national accounts. The authors find that adjusting for intangibles related to computer hardware and software yields a TFP level that is 15.9 percent higher than official measures in the United States by the end of 2017. Analyzing firm-level data across 13 EU countries, Bloom, Sadun, and Van Reenen (2012) find that foreign affiliates of US multinationals obtain higher productivity than non-U.S. multinationals (and domestic firms) from their IT capital owing to better management practices. The advent of AI is likely to spawn a new wave of complementary investments in intangible capital.

There is some evidence from developing economies on the link between digital technologies and productivity growth through investments in ICT and related intangible capital. Analyzing data across 156 countries between 1990 and 2019, Calderon and Cantu (2021) find that broadbandcapable mobile connections have an impact on economic growth through the total factor productivity growth channel, while the number of internet users drive it through the capital accumulation channel. Commander, Harrison, and Menezes-Filho (2011) identify a strong positive link between ICT capital and productivity in manufacturing firms in Brazil and India. Diao et al. (2021) show that capital-intensive technology advancements in the manufacturing sector improve firms' productivity in Ethiopia and Tanzania accordingly, with large firms experiencing stronger productivity gains. Piatkowski and van Ark (2005) show that ICT investment contributed to economic convergence between Central and Eastern European countries with the EU-15 and the United States during the 1990s. Intangible capital is found to be positively correlated with growth in China (Hulten and Hao 2012), export growth and TFP growth in the manufacturing sector in Brazil (Dutz et al. 2012), and software sector output in India (De 2009; De and Dutta 2007). In a study of 60 economies between 1995 and 2011, Chen (2018) finds that the differences in intangible capital can account for up to 16 percentage points of cross-country income variation.

# **3. Digitalization, employment, and wages**

Most people benefit from economic growth through the income they—or someone in their household—earn from work. This is particularly the case for poor households, whose human capital is often their largest asset. Digitalization, much like any other technology, can affect people’s incomes to the extent that it automates certain tasks, consequently displacing workers from certain jobs, or by placing a premium on new skills that poor or disadvantaged households often do not possess.

## **3.1** **_Does automation reduce the demand for labor?_**

The effects of technological change on the demand for labor have concerned society since the dawn of automation. A task-based framework assessing three channels through which digital 11