Philippine services firms that adopt digital technology increase their productivity, raise wages, and increase their value-added, according to the World Bank’s East Asia and the Pacific Economic Update for October 2023.
The report cited that the adoption of digital technologies increases service firms’ productivity and structural reforms that open service sectors to greater competition can spur productivity growth.
“The productivity increases are larger for adoption of information technology (IT) or data and software capital than the use of e-commerce,” it said.
The report underscored the impact of the diffusion of digital platforms. It cited an earlier study indicating these platforms present a competition shock for incumbent firms in the sectors in which they operate, such that e-commerce platforms affect traditional wholesalers and retailers by offering customers new ways of connecting with suppliers.
In the case of the Philippines’ service sectors, online platform diffusion is associated with higher productivity and growing sales of the firms in the sector in which platforms operate, the report said.
“Platform diffusion also affects firms that use their services, increasing their productivity and raising their wages. As the impacts of platform competition ripple through supply chains, we find the magnitude of productivity gain is triple the size of the direct own-sector effect,” it added.
The World Bank report said structural reforms that open service sectors to greater competition can spur productivity growth in services.
It said increased openness in services implies increased foreign presence, foreign entry, and competition between foreign and domestic providers.
“This competitive dynamic is expected to deliver better and more reliable provision of existing services, the introduction of new varieties of services, and competitive pricing in the services sector,” the report said.
“These are the main channels through which service trade liberalization can lead to increased productivity, value-added, and jobs in the services sector, and improved economy-wide performance through inter-linkages between the productive sectors,” it added.
The report said given the growing role of services in manufacturing, these positive productivity impacts extend beyond the direct impact on services to manufacturing firms that use services.
