Narrowing the technology gap: how latecomers can achieve this through digital transformation

Based on the knowledge-based view, this paper establishes a theoretical framework examining the impact of digital transformation (DT) on the technological catch-up (TC) of latecomers and empirically studies the role of DT in narrowing the technology gap (TG) between latecomers and frontier firms by using the data of China’s listed manufacturing firms from 2011 to 2022. Furthermore, the paper introduces and extends the TG model to investigate the mediating role of absorptive capacity (ACAP) and open innovation (OI). The empirical results indicate that DT has narrowed the TG and promoted the TC of latecomers. However, this promotion effect is relatively greater for latecomers in the middle and lower-middle of the productivity distribution than for latecomers that are close to or very far from the technological frontier. ACAP and OI mediate the role of DT in bridging the TG. The heterogeneity analysis shows that specific latecomers and latecomers in specific industries have narrowed the TG more quickly through DT. This paper provides a reasonable explanation for how DT affects the TC of latecomers and offers important theoretical and empirical support for latecomers to formulate catch-up strategies in the digital wave.