Empirical Evidence From Different Income Group Countries on the Interdependency Between Digitalization and Economic Development

Abstract

This study developed an information and communication technology evolution index (ICTEI) to explain the comparative performance of digitalization across 109 countries during 2010 – 2020. Composite Z-score and principal component analysis was used to create ICTEI. ICTEI was an integration of 16 different indicators associated with ICT access, ICT use, and ICT skills. Thereupon, ICTEI and per capita GDP were used as representative variables for digitalization and economic development, respectively to perceive a causal relationship among them. The empirical results revealed that economic development and digitalization have a positive and causal relationship. Trade openness, inflation, foreign direct investment, employment to population ratio, labour force participation rate, population growth, access to electricity, science and technological development, gross capital formation, and market exchange rate showed a diverse impact on economic development and digitalization in the different income groups countries.