Revisiting the environmental costs of digitalization: evidence from advanced economies
Abstract
Digitalisation has greatly changed development approaches worldwide, including increasing efficiency and productivity in sectors. But the potential impact on the environment is unclear. This study examines the effects of digitalisation on the environment in G7 economies between 2000 and 2023. A composite digitalization index is built by applying principal component analysis (PCA) and the carbon dioxide (CO 2 ) emissions is used as a proxy for environmental degradation. The study uses PMG-ARDL model to provide strong empirical analysis and FMOLS model as a robustness test due to cross-sectional dependence, slope heterogeneity and mixed integration order. The results show that digitalisation helps to lower CO 2 emissions in G7 countries, supporting environmental sustainability through technological progress. The EKC is verified, as initial economic development leads to rising emissions and beyond a threshold, lower emissions. In addition, energy use is a major contributor to environmental damage, and FDI results a decline of emissions. The findings underline the importance of policymakers to incorporate environmental concerns in digital transformation policies. To achieve maximum environmental benefits from digitalization, it is important to promote energy-efficient digital infrastructure and provide incentives for green innovation. The study highlights the need to make sure digital development is aligned with sustainability goals.