Digital and green spillovers across firm-level production networks in Estonia

This paper leverages a unique combination of firm-to-firm transaction and survey data from Estonia to show the importance of network effects for the green and digital transition. This paper shows that the most central firms are also the most energy-productive and digital-intensive, even when controlling for capital-intensity and labour productivity, within sectors and size categories. Using two event studies, the 2018 EU-ETS reform and the 2020 COVID-19 crisis, this paper presents causal evidence that energy productivity and digital technology adoption diffuse through the production network. The diffusion of energy productivity only goes downstream, probably through a price effect. By contrast, the diffusion of digital technologies goes in both directions and mostly upstream (i.e. firms start resembling their buyers). The heterogeneity analysis suggests network effects are a force of convergence, helping firms who are relatively less energy-productive or digital-intensive catch up with the leaders.