Digital Transformation and Economic Inequality: Trends, Clusters, and Policy Impacts Across Economies

Licong Xing, Ke Xu, Chengdi Luo, Yaoyi Zhang and Michal Basta

Politická ekonomie, vol. preprint

Abstract: Digital transformation is reshaping economic structures worldwide, yet its implications for income inequality remain debated. This study examines the relationship between digital readiness (DR) and income inequality across twelve advanced and emerging economies from 2005-2024. Using panel regression, clustering, and machine learning approaches, the study explores trends, structural country groupings, and the determinants of inequality. The results reveal heterogeneous dynamics: emerging economies often experience inequality reductions as digital readiness improves, whereas the effects in advanced economies are weaker or insignificant. Fixed-effects models suggest that short-run increases in digital readiness may temporarily coincide with higher inequality. Clustering identifies two structural groups of countries with distinct digital and socioeconomic profiles. Overall, the findings suggest that digital transformation alone is insufficient to reduce inequality and must be complemented by policies promoting affordable connectivity, digital skills, and inclusive institutions.

Keywords: Digital readiness; income inequality; fixed effects panel regression; machine learning; cluster analysis (search for similar items in EconPapers)
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DOI: 10.18267/j.polek.1542

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