Digital transformation and income disparities: A threshold analysis in developing countries

He, Xuan and Liu, Wenjia (2026) Digital transformation and income disparities: A threshold analysis in developing countries. ACTA OECONOMICA, 76 (1). pp. 50-68. ISSN 0001-6373

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Abstract

This study investigates the non-linear impact of digitalization on income inequality within developing economies. Utilising a balanced panel dataset of 45 countries from 2000 to 2023, we employ a dynamic panel threshold model to empirically identify structural breakpoints in this relationship. The findings reveal an inverted U-shaped pattern: at low-to-moderate levels of digitalization (index ≤ 0.48), technological advancement exacerbates income disparity, consistent with the ‘digital divide’ hypothesis. Conversely, beyond this critical threshold, further digitalization significantly mitigates inequality, aligning with the ‘digital inclusion’ perspective. These results suggest that the beneficial ‘digital dividend’ is contingent upon achieving a requisite level of digital maturity. Consequently, policy interventions in developing nations must prioritise the expansion of digital infrastructure to surpass this development threshold, thereby leveraging digitalization as a mechanism for equitable distribution.

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