EU countries' digital transformation, economic performance, and sustainability analysis

The rapid evolution of digital technologies has fundamentally altered the economic and social landscape of the member states within the European Union. The digital revolution is a critical driver in the global evolution of society and the economy. As digital technologies rapidly flourish, they generate significant challenges and opportunities at individual and organizational levels. Digital technologies are essential for achieving economic and sustainability goals. The acceleration of the digital transformation process to increase economic performance and ensure sustainability has garnered attention from consulting companies and intergovernmental bodies. Organizations and governments recognize the competitive advantage that innovation and digital transformation offer. Within the EU, this transformation profoundly impacts member states' economic performance and sustainability orientation. While sustainability has been widely debated, the role of digital transformation in ensuring sustainability has not received sufficient attention. This paper addresses the gap concerning the reconciliation between challenges generated by economic growth, sustainability orientation, and innovation through digital transformation, aiming to understand and measure the contribution of digital transformation to economic performance and achieving sustainability objectives. The central research question is: What is the impact of digital transformation on sustainability and economic performance? The paper posits that increased access to data, improved data processing, and integration/automation of information systems via new digital technologies enhance the achievement of sustainability and economic performance goals. The novelty lies in examining the interplay between digital transformation, economic performance, and sustainability at the EU country level. The paper is structured with literature review and hypotheses, methods, results, discussion (including implications, limitations, and future research), and conclusions.

The literature review covers digital technologies and digital transformation, and their relationships with sustainability and economic growth. Digital technologies—including ICT, e-commerce, cloud computing (CC), Big Data (BD), the Internet of Things (IoT), and artificial intelligence (AI)—are reshaping business and society, enabling data collection, storage, processing, and global communication, but also raising issues of security, privacy, and inequality. Industry 4.0 integrates these technologies into interconnected production systems supported by AI-driven analytics and cloud infrastructure. Adoption varies, with advanced technologies (especially AI) less prevalent among SMEs due to complexity. Two major societal trends—sustainability and digital transformation—represent paradigm shifts for organizations and states. Sustainability is transdisciplinary and multifaceted, with differing stakeholder perspectives, complicating unified implementation. Digital sustainability combines both concepts, where digital actions promote sustainability goals. Prior research indicates ICT, BD, and IoT can support sustainable perspectives and economic growth, and digital technologies can enable business models balancing social, environmental, and economic performance. Systemic, integrated study of technologies is needed to reliably assess digital transformation’s implications for sustainability. Hypothesis H1: Digital transformation exerts significant positive direct influences on economic sustainability and performance. Digital transformation creates value, drives entrepreneurship and innovation, and changes labor markets by increasing demand for IT skills. Access to computers and high-speed Internet, alongside the growth of e-commerce, are fundamental dimensions of digitization. Hypothesis H2: Among information and digital technologies, access to a computer with the Internet and the volume of e-commerce in European countries exert the most critical influences on sustainability and economic performance. Evidence largely supports positive effects of digital transformation on economic growth, though benefits can vary by development level and may diffuse gradually. Some studies find stronger impacts in developed countries, while others note positive effects in middle-income contexts. There is a risk of negative sustainability impacts if digital transformation is not well managed. At macro level, digital transformation boosts growth via productivity, but impacts vary across countries. Digital competitiveness is integral to national strategies for growth and sustainable development. Hypothesis H3: European countries with high level of digitization exhibit robust economic performance and a solid commitment to sustainability.

Research design: Following an exploratory literature review, the authors constructed a theoretical model and three hypotheses, then collected national-level data on digital transformation, sustainability, and economic performance across EU countries (with Norway added) and performed empirical analyses. Selected variables: Digital transformation is represented by five indicators: use of computers and Internet by employees (ICTu), share of enterprises’ turnover from e-commerce (eC), adoption of cloud computing (CC), big data analytics (BD), and use of IoT. Sustainability is measured by the SDG Index Score (SDGI). Economic performance is measured by GDP per capita in purchasing power standards (GDPpc; EU27 2020=100). Data sources: Eurostat (E-business and E-commerce sections of the Digital Economy and Society database) and Sustainable Development Report 2022. Data aligned to availability up to 2022. Norway was included to enrich regional dynamics. Descriptive statistics show wide, skewed distributions across variables. Research methods: The study employs three complementary methods:

• Structural equation modeling (SEM) using Partial Least Squares (PLS-SEM) to test H1. A formative model defines digital transformation as a latent construct formed by ICTu, eC, CC, BD, and IoT, with sustainability (SDGI) and economic performance (GDPpc) as endogenous constructs. Model fit and diagnostics reported include SRMR, NFI, R-squared, and VIF for multicollinearity.
• Artificial Neural Network (ANN) analysis using a Multilayer Perceptron (MLP) with backpropagation to test H2. Input layer includes ICTu, eC, CC, BD, IoT; hidden layer represents the usefulness of information and digital technologies; output layer includes SDGI and GDPpc. Hyperbolic tangent activation functions were used; inputs standardized; overall average relative error reported.
• Cluster analysis (agglomerative hierarchical clustering, average linkage between groups) to test H3, grouping countries by digital technology indicators, GDPpc, and SDGI to identify homogeneous clusters reflecting digitization, economic performance, and sustainability profiles. Software: SmartPLS v3.0 for PLS-SEM; SPSS v20 for ANN and clustering.

• Correlations: Strong positive correlations exist between ICTu and eC with GDPpc and SDGI; CC correlates with SDGI; BD correlates with GDPpc (Table 3).
• SEM-PLS model fit and diagnostics: SRMR=0.055 (good), NFI=0.949 (excellent). R-squared: Sustainability=0.678 (substantial), Economic performance=0.454 (moderate). VIFs for indicators all below 5 (ICTu 3.736; eC 1.497; CC 3.161; BD 1.602; IoT 1.326).
• Indicator weights: Digital transformation formative construct is primarily driven by ICTu (weight 0.659) and eC (weight 0.416), with lower weights for BD, CC, and IoT.
• Path coefficients (Table 5): • Digital transformation → Sustainability: 0.823, T=13.373, P=0.000 (positive, significant). • Digital transformation → Economic performance (direct): 1.133, T=4.036, P=0.000 (positive, significant). • Sustainability → Economic performance: −0.730, T=2.346, P=0.019 (negative, significant). • Indirect effect (Digital transformation → Sustainability → Economic performance): −0.601, T=2.044, P=0.041. • Total effect (Digital transformation → Economic performance): 0.531, T=2.059, P=0.040 (positive, significant). These results validate H1: digital transformation positively and significantly affects sustainability and economic performance, with a negative mediated path via sustainability partially offsetting the direct positive effect on economic performance.
• ANN (MLP) results (Table 6, Fig. 5): ICTu and eC have the strongest influences on the hidden layer and outputs. Normalized importance: ICTu=100%, eC=80.0%, CC=38.5%, BD=17.3%, IoT=1.7%. Overall average relative error=0.553. The ANN confirms H2: computer/Internet use by employees and e-commerce are the most important antecedents of sustainability and economic performance among the digital technologies considered.
• Cluster analysis (Fig. 6, Table 7): Three clusters emerge. Cluster 1 (largely Eastern and some Southern EU countries) shows lower digitization, GDPpc, and SDGI. Cluster 2 (many Western/Central EU members) shows higher digitization, GDPpc near EU average, and SDGI above EU average (with some exceptions). Cluster 3 (Nordics and Netherlands) shows high digitization, GDPpc, and SDGI. Ireland and Luxembourg are outliers due to very high GDPpc but medium digitization/sustainability. These findings support H3.

Findings demonstrate that intensified digital transformation is associated with higher sustainability scores and stronger economic performance across EU countries. The digitalization of enterprises—especially employees’ use of computers and Internet and the expansion of e-commerce—emerges as a key driver of country-level outcomes. The SEM results indicate robust direct effects of digital transformation on both sustainability and economic performance, while the negative path from sustainability to economic performance suggests potential short- to medium-term trade-offs or cost pressures of sustainability initiatives that may temper immediate economic gains. The ANN corroborates the primacy of foundational ICT use and e-commerce for macro outcomes, implying that solid ICT infrastructure and digital readiness in firms are prerequisites for deriving benefits from advanced technologies. Cluster analysis reveals coherent country groupings: less digitized countries tend to lag in GDP per capita and SDG performance, whereas highly digitized countries (Nordics, Netherlands) excel on both dimensions. This supports the idea that digital transformation can underpin sustainable economic models. Nonetheless, other enabling factors—such as political stability, human capital, regulatory quality, and resource endowments—also condition outcomes. Policy implications include prioritizing ICT infrastructure (e.g., broadband, 5G/6G), enterprise digital adoption, and online commerce enablement as levers to accelerate both sustainable development and economic performance. The approach facilitates benchmarking and identification of best practices among peer countries.

Digital transformation—integrating new digital technologies with existing ICT—differentiates countries in economic performance and sustainability orientation. The study empirically addresses the research question on the impact of digital transformation on sustainability and economic performance, contributing to the emerging domain of digital sustainability. Results show strong, positive effects of digital transformation on sustainability and economic performance at the EU country level, with foundational technologies (computer/Internet use by employees and e-commerce) as the main drivers. European countries recognize the competitive advantage of robust digital economies; however, heterogeneity persists across member states. Policymakers in less digitized countries should emulate best practices of highly digitized peers to foster sustainable economic growth. Future research should extend analyses longitudinally and with multidimensional indicators to refine understanding of technology-specific impacts on the SDGs.

The study is limited to 28 European countries (with Norway included for cross-sectional analysis), constraining generalizability beyond Europe. The cross-sectional design provides a static snapshot, limiting causal inference and temporal dynamics. Digital technology coverage is constrained by Eurostat data availability, and only one indicator each was used for economic performance (GDP per capita) and sustainability (SDG Index Score). Future research should employ longitudinal designs, expand the set of indicators for economic performance and sustainability, and analyze technology-specific effects on individual SDGs.