Theorizing the relationship between the digital economy and firm productivity: The idiosyncrasies of firm-specific contexts

Abstract

With the rise of emerging economies such as China, the research environment for the digital economy (DE) has changed significantly. However, our understanding of the productivity impact of DE development in Chinese firms remains in its infancy. The idiosyncrasies of the firm-specific contexts are closely related to further research on the this topic. As a baseline, we hypothesize a U-shaped DE-firm productivity (FP) relationship. We analyze the idiosyncratic influences of firm size and locality on the DE–FP relationship. The findings, which are based on a sample of Chinese firms from 2016 to 2019, show that (a) the U-shaped DE–FP relationship applies to Chinese firms; (b) this relationship is moderate for large firms, substantially steeper for medium firms, and inverted for small firms; (c) the U-shaped DE–FP relationship for eastern region firms is moderate, while the U-shaped relationship for central region firms is steep, but the transition is incomplete, and western region firms have experienced increasing productivity since the early stage of DE development. This study offers an alternative approach to understanding Chinese firms’ strategic choices in DE development and provides a more nuanced explanation for the productivity paradox by emphasizing the significance of the firm-specific context. In this way, the study captures the sophisticated and constantly evolving relationships between DE and FP for heterogeneous Chinese firms.