Digitalization and Total Factor Productivity of Selected Firms Listed at the Nairobi Securities Exchange in Kenya Godfrey
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Date
2025-05
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Kenyatta University
Abstract
As digital transformation reshapes global economies, firms listed in Nairobi Securities Exchange
face both opportunities and challenges in leveraging advanced technologies to enhance
productivity. While Kenya has gained significant recognition as a leading technology hub in
Africa, with notable firm investments in digital technology, the correlation between firm digital
tech investments and productivity remains inconsistent. The main objective of the study was to
analyze the effect of digitalization on the total factor productivity of NSE-listed firms. The study
derived a framework from Cobb-Douglas Production Theory by adopting Growth Accounting
Equation Approach and Generalized Method of Moments to analyze the effect of digitalization
on Total Factor Productivity NSE-listed firms. The study used annual panel data from seven top listed firms in the Nairobi Securities Exchange from 2018 to 2023. The data was sourced from
annual financial reports of the selected NSE-listed firms, and historical data from the Nairobi
Securities Exchange. The results showed that digitalization has a positive effect on the total
factor productivity of NSE-listed firms. The results suggest continuous investment in
digitalization is sustainable in maintaining productivity of NSE-listed firms. This underscores the
importance of digital transformation as a strategic tool for enhancing firm-level efficiency. To
complement digital investments, firms and policymakers should invest in up-to-date workforce
upskilling programs to bridge the digital literacy gapAs digital transformation reshapes global economies, firms listed in Nairobi Securities Exchange
face both opportunities and challenges in leveraging advanced technologies to enhance
productivity. While Kenya has gained significant recognition as a leading technology hub in
Africa, with notable firm investments in digital technology, the correlation between firm digital
tech investments and productivity remains inconsistent. The main objective of the study was to
analyze the effect of digitalization on the total factor productivity of NSE-listed firms. The study
derived a framework from Cobb-Douglas Production Theory by adopting Growth Accounting
Equation Approach and Generalized Method of Moments to analyze the effect of digitalization
on Total Factor Productivity NSE-listed firms. The study used annual panel data from seven top listed firms in the Nairobi Securities Exchange from 2018 to 2023. The data was sourced from
annual financial reports of the selected NSE-listed firms, and historical data from the Nairobi
Securities Exchange. The results showed that digitalization has a positive effect on the total
factor productivity of NSE-listed firms. The results suggest continuous investment in
digitalization is sustainable in maintaining productivity of NSE-listed firms. This underscores the
importance of digital transformation as a strategic tool for enhancing firm-level efficiency. To
complement digital investments, firms and policymakers should invest in up-to-date workforce
upskilling programs to bridge the digital literacy gap
Description
A Research Project Submitted to the Department of Economic Theory in the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Masters of Economics of Kenyatta University May, 2025
Supervisors;
1.saac Kimunio