Does Internet Penetration Always Enhance Labor Productivity?

This study investigates whether internet penetration consistently enhances labor productivity or whether its effects diminish as adoption approaches saturation, and whether innovation capacity strengthens these impacts. Drawing on a balanced panel of 60 countries from 2000–2022, fixed- effects models with robust controls are applied. Productivity is measured as GDP per worker, with nonlinear dynamics captured through internet penetration and its squared term. The results reveal an inverted U-shaped relationship: internet use significantly boosts productivity at low and intermediate levels, but marginal gains decline once high adoption is reached. Complementarity analyses indicate that R&D expenditure amplifies these benefits, while ICT service exports play a more limited role. Robustness checks using broadband penetration, lagged models, and OECD versus non-OECD subsamples confirm the baseline findings. OECD countries experience steady but modest returns, whereas non-OECD high-income economies exhibit stronger yet more rapidly saturating effects. These context-specific dynamics underline that expanding digital access alone cannot secure long-term productivity growth. The findings emphasize the need for second- generation digital and innovation policies. Governments should complement connectivity with investments in broadband quality, digital skills, and innovation ecosystems, enabling firms and workers to fully leverage advanced ICT applications for sustained productivity gains.