The Impact of Digital Transformation on Environmental Sustainability: An Econometric Study of a Sample of Arab Countries, 2005–2024

Abstract

Purpose- Amid the accelerating digital transformation, the pace of resource exploitation hassignificantly outstripped its renewal capacity, leading to escalating environmental challenges.In this context, technological innovation has become a cornerstone for achieving twointertwined goals: environmental protection and economic and social development. Withgrowing emphasis on environmental responsibility, digital transformation emerges as crucialfor attaining environmental sustainability goals. Despite the positive contributions of digitaltechnologies to environmental sustainability, they also entail negative environmental impacts.Thus, do Arab countries benefit from digital transformation in achieving environmentalsustainability, or does it have adverse effects on the environment through increased carbondioxide emissions?Design/Methodology/Approach – This research paper relies on a sample of 14 Arab countries,selected due to the availability of primary study data from the World Bank's database. Itemploys the extended STIRPAT model (Stochastic Impacts by Regression on Population,Affluence, and Technology) to investigate the impact of digital transformation onenvironmental sustainability, utilizing the ARDL methodology data to analyze the short- andlong-term dynamic relationships between variables in panel data. Additionally, the study adoptsa fixed effects model to demonstrate whether the relationship between digital transformationand environmental sustainability follows an inverted U-shape.Findings – The analysis shows that digital transformation in Arab countries has a positiveimpact on environmental sustainability in the long-run. The estimated model reveals that anincrease in digital transformation will lead to a 1.05% reduction in carbon emissions throughinvestment in digitalization and green technology. Digital transformation can also reduceenergy consumption through smart grid solutions and artificial intelligence by facilitating theintegration of renewable energy, reducing reliance on fossil fuels, and paving the way for atransition to a low-carbon economy. Moreover, the relationship between digital transformationand Arab sustainability follows an inverted U-shape.Research limitations/implications – The study originally intended to cover all Arab countries;however, owing to difficulties in obtaining comprehensive data on digital transformation andenvironmental sustainability indicators for every country in the region, the analysis was limitedto 14 countries. Consequently, we recommend that future research broaden the sample to include a larger set of countries beyond the Arab region. Future work should also considerincorporating mediating variables—such as governance quality, energy mix, and greeninnovation—to examine the transmission channels of the observed effects.Practical implications–This research contributes to a deeper understanding of the role of digitaltransformation and innovation in environmental sustainability by leveraging technology in theenvironmental sector and transforming the environment into a source of sustainability andpreservation for future generations. Integrating technology with environmental systems leadsto the development of innovations that enhance environmental sustainability, such as cloudcomputing, the Internet of Things (IoT), artificial intelligence, big data analytics, andrenewable energy technologies. It highlights for policymakers that digital transformation mayinitially produce negative impacts on environmental sustainability, but over time and in thelong-run, positive results begin to emerge as a result of exploiting digital technologies anddeveloping eco-friendly solutions that promote efficient use of natural resources and reducewaste, thereby making a significant contribution to achieving environmental sustainability.Policymakers and environmental regulatory bodies in Arab countries can benefit from thesefindings to optimally utilize digital technologies for enhancing environmental sustainability.Social implications– Digital transformation raises societal awareness of environmentalsustainability through digital solutions, encourages community participation in eco-friendlyinitiatives, creates new job opportunities in renewable energy and the circular economy, anddrives youth toward green entrepreneurship.Originality/value–This study explores the potential long-term impacts of digital transformationon environmental sustainability, considering it among the first studies to employ the extendedSTIRPAT (Stochastic Impacts by Regression on Population, Affluence, and Technology)model alongside the panel ARDL approach to uncover short- and long-term effects of digitaltransformation on environmental sustainability across 14 Arab countries.