Abstract: Digital transformation is a new engine for economic growth. Based on the data from 45 countries and 17 manufacturing industries from 1995 to 2018, this study theoretically analyzes and empirically tests the impact of digital investment on total factor productivity, and further examines the moderating effect of local market size and market competition environment, as well as the industry correlation effect of digital investment. The findings show that digital investment can significantly promote the growth of total factor productivity. Digital investment has a significant promoting effect on total factor productivity growth in both developed and developing countries. Digital investment has a significant promoting effect on the total factor productivity growth of labor-intensive, capital intensive, and technology intensive industries, and this effect is strongest in labor-intensive industries and weakest in technology intensive industries. Both foreign digital investment and domestic digital investment can promote the growth of total factor productivity, but the promoting effect of the former is weaker than that of the latter. Digital investment mainly promotes the growth of total factor productivity by improving technological efficiency. The promoting effect of digital investment on total factor productivity growth is positively moderated by the size of the local market, and this moderating effect is stronger in labor-intensive industries and when using domestic digital investment. The expansion analysis shows that digital investment has significant industry correlation effects and can enhance total factor productivity by promoting the collaborative integration between industries. The imperfect market competition environment will suppress the productivity effect of digital investment, while the weakening of the local market size will reduce the inhibitory effect of the imperfect market competition environment on the promotion of total factor productivity growth by digital investment. Further discussion indicates that the promoting effect of digital investment on total factor productivity growth and the positive moderating effect of local market size also hold true in the Chinese samples. Based on the above conclusion, we should fully utilize the advantages of China’s super large market, continuously deepen market-oriented reforms, and continue to promote the digital development of industries, thereby providing strong support for promoting the transformation and upgrading of the manufacturing industry and high-quality economic development.

Key words: digital input, Total Factor Productivity, local market size, industry linkage effect, market competition effect