When Technology Meets Institutions: Digitalization, Governance, and Human Development in Emerging Economies

Abstract

Purpose: This study examines the joint impact of digitalization and governance quality on human development in emerging economies.

Approach: Using yearly data from 30 countries (2002–2023), we analyze both direct and moderating effects by combining fixed-effects estimation with a two-step Difference GMM approach.

Findings: Digitalization shows a positive relationship with the Human Development Index (HDI). The interaction between digitalization and governance is negative—statistically significant in the fixed-effects model and negative, albeit less precise, in the Difference GMM model—suggesting that the gains from digitalization diminish as governance improves. Control variables act as slow-changing fundamentals; primary school enrollment is positive and significant in the dynamic model, while urbanization and the dependency ratio are not significant.

Originality: The findings suggest that digital policies alone are insufficient; institutional quality determines the extent of the “digital dividend.” We recommend combining investments in connectivity and digital public services with reforms to strengthen the rule of law, regulatory quality, and accountability, thereby promoting fair and lasting improvements in human development.

Keywords: Digital transformation; Governance quality; Rule of Law; Human Development Index; Emerging economies; Difference GMM; Interaction effects; Inclusive growth