THE INNOVATION PARADOX IN DEVELOPING ECONOMIES: WHY DIGITAL TRANSFORMATION DOES NOT GUARANTEE SUSTAINABLE DEVELOPMENT
DOI:
https://doi.org/10.58885/ijllis.v14i3.74fxhbKeywords:
digital transformation, sustainable development, developing economies, economic inequality, institutions, technological capabilities, development policy.Abstract
The role of digital transformation in driving economic development has become a central topic in current economic and policy discussions, particularly for developing countries. Digitalization is frequently seen as a route to greater efficiency, improved competitiveness and broader participation in economic activities. But such expectations are not always met in practice. Despite rapid growth of technology and investments in digital infrastructure, many developing economies are plagued with structural unemployment, inequality and uneven development. This discrepancy between expectations and results raises a fundamental question on the real contribution of digital transformation to economic development. This structured literature review examines the nexus between digital transformation and sustainable development, with a special focus on the economic and institutional factors affecting this relationship in developing countries. This review synthesizes academic literature and international development reports on digitalization, technological capacities, economic development, inequality, productivity, institutional capacity and environmental sustainability. The literature is analyzed through four interrelated analytical dimensions: technological and absorptive capabilities; digital inclusion and inequality; productivity and value capture; and the environmental and institutional dimensions of digital transformation. The analysis shows that technological progress, without inclusive economic policies, investments in human capital and effective institutions, is not a sufficient condition for sustainable development. In those contexts, digitalization will not lead to structural transformation but rather to a reproduction of existing constraints. Results show that the relationship between digital transformation and sustainability is not linear or automatic. The impact will depend on how digital processes are embedded in wider economic systems and policy-making as digital transformation could exacerbate existing inequalities rather than promote sustainable and inclusive economic growth.
References
Cirera, X., & Maloney, W. F. (2017). The innovation paradox: Developing-country capabilities and the unrealized promise of technological catch-up. World Bank. https://doi.org/10.1596/978-1-4648-1160-9
Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152. https://doi.org/10.2307/2393553
UNCTAD. (2021). Digital economy report 2021: Cross-border data flows and development: For whom the data flow. United Nations Conference on Trade and Development.
UNCTAD. (2024). Digital economy report 2024: Shaping an environmentally sustainable and inclusive digital future. United Nations Conference on Trade and Development.
World Bank. (2016). World development report 2016: Digital dividends. World Bank.
World Bank. (2017). Technological innovation: Challenges and opportunities for developing countries. World Bank.
World Bank. (2021). World development report 2021: Data for better lives. World Bank.
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