Institutions, digital investment potential and productivity growth in EU and Southeast Asia

Abstract

Purpose – This paper investigates how digitalisation – encompassing broadband infrastructure (basic connectivity), ICT investment (usage intensity) and e-commerce – impacts productivity growth in European Union and Southeast Asian economies. It also explores whether robust institutional quality magnifies digital returns. Design/methodology/approach – A panel of 38 countries (2012–2023) was compiled using World Bank, Eurostat and ITU data. System GMM regressions address endogeneity and dynamic effects. Growth accounting methods, including Data Envelopment Analysis and the Malmquist Index, validate the regression findings and gauge efficiency and technological shifts. Findings – The findings highlight that investing in ICT and using e-commerce strongly boost productivity, while broadband connectivity alone has limited impact unless supported by good governance. High-quality institutions enhance the effectiveness of digital investments. Moreover, greater digitalisation reduces unemployment and encourages wider workforce participation, demonstrating significant economic and social benefits. Research limitations/implications – Secondary macro data may obscure regional nuances. Future studies could use firm-level datasets or investigate emerging digital tools (e.g. AI). Practical implications – Policymakers should combine investment in digital connectivity with efforts to strengthen institutions and improve digital skills to achieve sustained economic growth. Social implications – Bolstering inclusive digital adoption can reduce regional inequalities, promote economic resilience and lay groundwork for broader sustainable development. Originality/value – Unlike previous studies that mainly focus on digital infrastructure, this research uniquely shows how the intensity of digital use and the quality of institutions jointly drive productivity. Integrating institutional theory with practical economic analysis across two diverse regions, it offers fresh insights into achieving meaningful productivity gains from digitalisation.