International Digital Technology Cycles and Local Economic Performance: The Balance between Concentration and Diversification

The paper studies international dynamics in the development of digital technologies and their effect on local economic performance. We use a structural dynamic factor model to decompose trends in patenting activities across digital technology fields and countries into global and country-specific components. We then examine the impact of these global and country-specific digital technology development cycles on local economic performance and technological specialisation by regressing value added, employment, wages, labour productivity and digital technology specialisa-tion on world and country factors. The empirical results show that the global digital technology cycle plays a significant role in all countries. The study finds a positive relationship between the global digital technology cycle and the economic performance of a country’s ICT sectors. It shows that countries benefit from international efforts to develop digital technologies if their ICT sector encompasses a broad range of technologies and is not specialised in specific digital technologies JEL classification: O31, O33, O47, C38, L86