Exploring the Impact of Digitalization on Economic Growth: Evidence from Emerging Markets

Abstract

Digitalization has emerged as a critical driver of economic growth in emerging markets yet its causal mechanisms remain underexplored amid infrastructure gaps and digital divides. This study employs Panel ARDL-ECM analysis on 25 emerging economies (2010-2026) including Pakistan, India and Brazil to examine digitalization's impact on GDP growth. Findings reveal a robust long run elasticity of 1.45a one standard deviation increase in the Digitalization Index (DI) yields 1.45% higher GDP growth, with human capital index (HCI) moderating effects (0.89). Error correction term (-0.38) indicates 1.8-year adjustment half life while digital divides elevate unemployment by 0.67%. Pakistan exhibits transitional dynamics (1.22 elasticity, 2.8 year half life) due to infrastructure constraints. Robustness via GMM-SYS, quantile regression  and regional heterogeneity confirms leapfrogging potential for laggards. Results validate digitalization as an economic "preservation coating" against stagnation, urging infrastructure investments and literacy campaigns.Simulations using policy models predict a cumulative 2.5% increase in real GDP due to greater than 10% DI improvements. Digital transformation is necessary to realise the trillions of dollars of potential in many emerging markets (EM’s).