DIGITALISATION AND INTERNATIONAL BUSINESS ACTIVITY: EVIDENCE FROM A CROSS-COUNTRY TYPOLOGY

Abstract

This study develops a data-driven typology of countries based on their level of digitalisation and international business activity, addressing the need for a systematic macro-level framework linking digital readiness to global economic integration. Using a dataset of 111 countries for 2024, built around the Network Readiness Index (NRI) and seven indicators of trade, investment, and institutional and macroeconomic conditions, the study applies outlier winsorisation, correlation screening, and Z-standardisation as pre-processing steps. To address multicollinearity and the curse of dimensionality, Principal Component Analysis (PCA) reduced the eight original variables to three interpretable factors – economic-digital maturity, economic dynamism and openness, and macroeconomic instability – jointly explaining 77.9% of total variance. Three clustering algorithms (K-Means, agglomerative hierarchical clustering, and Gaussian Mixture Models) were compared across cluster counts from two to ten using the Calinski-Harabasz criterion; K-Means with six clusters produced the best-performing and most interpretable solution (CH = 73.24). One-way analysis of variance (ANOVA) confirmed that all eight original indicators differ significantly across the resulting clusters (p < 0.001), with GDP per capita and the NRI showing the largest effect sizes. The resulting six-cluster typology comprises least-digitalised low-income economies, a large and heterogeneous group of middle-income economies, mature high-income economies, a small group of global financial and digital hubs, dynamic small open economies, and economies affected by macroeconomic instability. This typology largely corroborates conventional income-based classifications while additionally isolating two structurally distinct groups – hub economies and unstable economies – that are obscured by standard development taxonomies. The findings provide an empirically grounded basis for differentiated national digital development policy and for future research on the relationship between digitalisation and international business performance.