PUBLIC-SECTOR DIGITALISATION AND ECONOMIC GROWTH IN THE EU: THE ROLE OF E-GOVERNMENT USE AND DIGITAL GOVERNMENT CAPACITY

Abstract

Abstract This study investigates whether public-sector digitalisation is associated with real GDP per capita growth in the EU-27 and whether this relationship depends on time dynamics and governance quality. The analysis combines two measures of digital government development: a behavioural indicator capturing the share of individuals interacting online with public authorities (Eurostat), with adjustments for the 2021-2022 series break, and the Public-Sector Digital Capacity Index (PSDCI), developed from the eGovernment Benchmark dimensions for a shorter panel. The empirical strategy applies two-way fixed-effects models with country and year effects, including lagged specifications, an interaction between digitalisation and Government Effectiveness (WGI), and robustness checks using Driscoll-Kraay standard errors and placebo lead tests. The findings show no statistically significant average contemporaneous relationship between e-government use and economic growth. PSDCI estimates are positive but remain statistically uncertain due to the limited time dimension. However, when lagged effects and institutional conditions are considered, a relationship between digitalisation and growth becomes evident, particularly at lower levels of governance effectiveness. The results suggest that public-sector digitalisation does not automatically translate into higher economic growth. Its contribution depends on the timing of effects, the measurement approach, and the institutional environment in which digital reforms are implemented. These findings highlight the importance of considering governance capacity and dynamic effects when evaluating the economic impact of digital government transformation.