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The allocative channel of digital transformation: Information precision and production-network spillovers

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  • Gu, Mingrui
  • Yang, Cunyi

Abstract

This study examines whether, and through which mechanism, digital transformation improves allocative efficiency and aggregate productivity. We build a unified framework that embeds firm-level signal learning into a sectoral production network: digital adoption raises the signal-to-noise ratio of productivity information, aligning input choices with true productivity and transmitting gains across supply chains. Using panel data on more than 3000 Chinese listed firms (2012–2022) and a comprehensive digital transformation index, we proxy misallocation by the absolute deviation of firm ROA from the industry-year benchmark. Greater digital adoption is associated with significantly smaller deviations; moving from the 25th to 75th percentile reduces the ROA-based performance gap by roughly 10%–15%. General-equilibrium simulations on input–output networks further show that sectoral improvements in information precision generate sizable spillovers. Manufacturing exhibits the largest total effect: a one-unit increase in the manufacturing digital index raises total output by about 8.7%, with significant benefits transmitted to both agriculture and services.

Suggested Citation

  • Gu, Mingrui & Yang, Cunyi, 2026. "The allocative channel of digital transformation: Information precision and production-network spillovers," Journal of Business Research, Elsevier, vol. 212(C).
    • Handle: RePEc:eee:jbrese:v:212:y:2026:i:c:s0148296326002729
    DOI: 10.1016/j.jbusres.2026.116237
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    Keywords

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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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