Disrupting regional efficiency gaps via Industry 4.0 firm investments

This paper has two principal purposes. The first is to measure the operational efficiency gain that adopting new advanced technologies, defined as the fourth industrial revolution allows firms to achieve. The second is to challenge whether Industry 4.0 investments bring about strong enough improvement in firm performance to address the historical regional development gaps in Italy. Using a sample of 2609 firms observed during the period 2016-2019, we estimate technical efficiency scores by applying a one-step stochastic frontier analysis. This technique allows us to simultaneously relate operating performance to a set of regional dummy variables and assess the Industry 4.0 investment share of total firm investment expenditure. The stylised facts indicate substantial efficiency disparities between smart factories and firms that do not implement such investments. The adoption of new technologies partially mitigates the Italian regional efficiency gap, bridging the distance between Southern Italy and the rest of Italy.