Modeling Digitalization Pathways and Spillovers in the Economies where the EBRD Invests

The digital economy is becoming a key driving force behind economic development as the impact of digital technologies goes beyond the traditional tech sectors, as digital investments spillover from one company to another, multiplying their impact. The challenge with understanding the linkage between digital transformation and spillover effects is the immense scope of economic synergies arising from digital transformation and the limited research on this topic. To fill this gap in current literature and effectively answer the European Bank for Reconstruction and Development (EBRD)’s question, this report attempts to address how digital pathways lead to digital spillover effects by jointly investigating quantitative and qualitative inputs.  

The Capstone team evaluated aggregate trends, developed a new Connectivity Score Index, and conducted regression analyses. The methodology section noted the research approach, and the sectoral analysis section shared the main results of the regression analysis between the mentioned index and the Corruption Perception Index, and financial and agriculture indicators. The analysis indicated that the digital transformation has a positive effect on reducing corruption, expanding domestic credit, reducing bank costs, boosting agricultural exports, and enhancing agricultural total factor productivity.  Furthermore, the team conducted a rigorous literature review and expert interviews to produce case studies for four countries: Estonia, Ukraine, Poland, and the Kyrgyz Republic. In the country profile analysis section, the Capstone team identified drivers and barriers to digital transformation based on economic, environmental and external, regulatory-institutional, technical, and socio-cultural factors, as well as pivotal events in the digital journeys of these countries. Ultimately, the team found that trust, digital security, data privacy, digital skills, and digital financing are all significant accelerators to a successful digital transformation.  The report concluded with recommendations for maximizing digital spillover effects, including utilizing data and monitoring progress, consistency with digital development agendas, and targeted investments. The report provided next steps in the form of guiding principles and frameworks and further research themes that would be advantageous to conduct.