Distribution Services and the Digital Economy: Implications for GDP Measurement, Productivity and Household Welfare*

I identify here important changes in how retailing functions are performed due to the penetration of the digital economy. First, in the distribution of goods for final consumption the same functions as before are performed independently of stores and their location. Second, in the distribution of inputs for household production of services the core products that consumers pay for explicitly are transformed from tangible goods into intangible services. Third, in the distribution of services, selected aspects of the retail function are performed digitally whereas others are not. Finally, for some subcategories of service products where consumption and distribution are separable activities it becomes possible to distribute the service entirely in digital form. These features of the digital economy have important implications for GDP measurement, productivity and household welfare in the retail sector and in all service sectors of the economy. They even have minor ones for GDP measurement in the manufacturing sector. The paper develops these implications systematically and separately with respect to the distribution of goods and services. Finally, this analysis provides support for applying to the digital economy Robert Gordon’s characterization of recent innovations as having a lesser impact on economic growth than the great inventions of the past with respect to their impact on distribution.