EIB Working Paper 2024/04 - The impact of the digital and green transitions on investment inefficiency

Abstract

Firms do not always invest at the optimal and most efficient level. This study examines whether investing in green and digital technologies tends to make the level of firms' investments more efficient or inefficient. Using data from the European Investment Survey (EIBIS), matched with data from ORBIS, and covering nearly 5000 observations from 27 European countries over the period 2021-2023, the study employed a panel data regression model to estimate the effect of green and digital investments. The analysis shows that both types of investments reduce investment inefficiency, particularly for under-investing firms. Results also suggest that digital technologies can enhance the efficiency gains from green investments. These results have important implications for policy makers and business managers who aim to foster the twin digital and green transitions in Europe and improve investment efficiency and competitiveness.