Impact of Digital Transformation and Green Innovation Investments on Corporate Labour Productivity in China: A Regional Heterogeneity Analysis
Impact of Digital Transformation and Green Innovation Investments on Corporate Labour Productivity in China: A Regional Heterogeneity Analysis

Summary/Abstract: In the context of a labour shortage, increasing labour productivity becomes the main way to address the challenges facing companies. This article assesses the impact of digital transformation on labour productivity using the example of Chinese enterprises, with a focus on investments in green innovation and regional heterogeneity. Using a panel dataset of A-share listed firms from 2007 to 2023, we construct a firm-level Digital Transformation Index (DTI) based on textual analysis of annual reports, measuring the frequency of keywords related to digital technologies. Labour productivity is proxied by the natural logarithm of operating revenue per employee. Employing two-way fixed effects regressions with lagged explanatory variables to address endogeneity, we find that digital transformation enhances labour productivity. Mechanism tests reveal that green innovation investment, measured by the log-transformed number of granted green patents, partially mediates this relationship, consistent with the weak form of the Porter Hypothesis. Digital technologies facilitate cleaner production, improve resource efficiency, and enhance operational performance, thereby increasing output per employee. Heterogeneity analyses further indicate that these effects are stronger in non-high-tech industries, likely due to greater catch-up potential and larger marginal gains from digital adoption, as well as in eastern China, where superior digital infrastructure, deeper talent pools, and higher levels of marketization may facilitate the realization of digital benefits. By contrast, the effects are insignificant in high-tech sectors, potentially reflecting technological saturation and higher adjustment costs, and in central and western regions, where persistent digital divides may constrain the productivity-enhancing effects of digital technologies. These findings highlight the productivity-enhancing potential of digital transformation, particularly when integrated with green innovation, and underscore the importance of complementary regional conditions in their realizing and confirm such investments effectiveness in countries with developing economies.

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