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Digital transformation, governance, and economic growth: a dynamic panel and quantile regression analysis

Year: 2026

Type: article

Abstract: In the age of blistering technological dynamism, digital transformation has become the strategic facilitator of economic growth, especially in low- and middle-income countries (LMICs). The degree to which digitalization leads to fair economic results is, however, dependent on institutional performance. The proposed study investigates whether the relationship between digital transformation and inclusive economic growth has a moderate influence of governance in 54 LMICs from 2010 to 2023. Our framework is based on Institutional Theory and the Digital Development Paradigm, using a dynamic panel System GMM estimator to deal with endogeneity, persistence and unobserved heterogeneity, and on panel quantile regression to obtain distributional heterogeneity in growth levels. The findings indicate that digital transformation is a major contributor to economic growth that is enhanced by good governance structures. The interaction relationship between digital transformation and governance is positive and important, which means that the quality of institutions increases the ability of digital infrastructure to be transformed into inclusive results. The robustness checks based on quantile regression indicate that the benefits of digitalization are not evenly distributed, and the countries of lower growth are experiencing less robust benefits without institutional support. These results highlight the fact that achieving the inclusive power of the digital transformation cannot be achieved without digital strategies, but good governance is essential. The research adds to the literature because it incorporates the moderating institutional mechanism into a changing econometric framework that presents fresh standards to policymakers in the new economies. It suggests that simultaneous investment in digital infrastructure and institutional reform is recommended to attain sustainable and inclusive development.

Source: Humanities and Social Sciences Communications

DOI: 10.1057/s41599-026-08295-5

Authors: Dan Li, Muhammad Azhar Bhatti, Muhammad Nouman Shafiq

Institutions: University of Science and Technology Beijing, Islamia University of Bahawalpur, ILMA University, Xi'an Jiaotong University

Language: English

Topic: Economic Growth and Development

Subfield: Information Systems

Field: Computer Science

Domain: Physical Sciences

SDGs: Industry, innovation and infrastructure, Decent work and economic growth, Reduced inequalities, Peace, justice, and strong institutions

Open Access status: gold

Estimated APC paid: $1,890