Digital Adoption and Productivity in Rentier Economies: Evidence from the GCC

Abstract

Gulf Cooperation Council (GCC) economies are investing heavily in digital infrastructure to diversify beyond hydrocarbons, yet the productivity returns from these investments remain uncertain. This study examines whether digital adoption enhances labor productivity in GCC economies (2000–2023). We construct a Composite Digital Index (CDI) from broadband subscriptions, internet use, and mobile penetration. Interpreting the Gulf economies as socio-technical systems, we frame digital adoption, productivity, and investment (measured by GCF) as a reinforcing loop, with government effectiveness amplifying the cycle and oil rents dampening it. Using panel data methods, including fixed-effects and long-run estimators, we find that digital adoption yields persistent productivity gains. In the long run, a one-point increase in CDI is associated with a 12.6 percentage point rise in labor productivity growth (p < 0.05). This effect triples—to approximately 38.5 percentage points—when moderated by strong government effectiveness (CDI × Governance interaction: +26.3; p < 0.01). Conversely, the productivity payoff declines significantly with oil-rent dependence: for every 10 percentage-point rise in oil rents, the marginal effect of digital adoption drops by 3.4 points. These gains are significantly larger where government effectiveness is stronger, while oil dependence weakens them. The findings imply that infrastructure adoption alone is insufficient: institutions and fiscal structures condition whether digital adoption translate into sustained productivity growth. Policy priorities should focus on institutional reform, fiscal diversification, and enabling firm-level digital absorption—particularly in high-rent economies—so that adoption translates into broad-based productivity dividends.