How does digitalization enhance sustainable economic development? The case of Azerbaijan and Hungary

Mirvari Gazanfarli; Mónika Garai-Fodor

doi:10.31181/dmame8220251496

Authors

Mirvari Gazanfarli Azerbaijan State University of Economics, Baku, Azerbaijan
Mónika Garai-Fodor Obuda University, Keleti Faculty of Business and Management, Budapest, Hungary

DOI:

https://doi.org/10.31181/dmame8220251496

Keywords:

Sustainable Economic Development, ICT Infrastructure, ICT Trade, VECM, Machine Learning Models

Abstract

Understanding the economic consequences of digitalisation is essential for designing policies that foster inclusive and sustainable development, particularly within emerging and transition economies. This research explores the influence of digitalisation on sustainable economic progress in Azerbaijan and Hungary, utilising annual data spanning from 2000 to 2023. Employing a hybrid methodological approach, the study integrates conventional econometric analysis (VECM) with supervised machine learning techniques (ARIMA and XGBRegressor) to provide a comparative assessment of the economic impacts resulting from digital transformation. The empirical results indicate that, in the short term, variables associated with information and communication technology (ICT) do not exert a statistically significant effect on economic growth. This finding suggests that the economic benefits of digitalisation may take time to materialise. Conversely, in the long term, digitalisation demonstrates a notable influence on GDP per capita in both nations. Specifically, in Azerbaijan, a 1 percent rise in Computer, communications, and other services (CCS) correlates with a decrease of $173.68 in GDP per capita, while Hungary experiences a reduction of $516.28 under similar conditions. Additionally, mobile subscriptions (MSC) and the contribution of high-tech manufacturing value-added (MHTMV) are associated with adverse effects on Azerbaijan’s economic development. Forecasts generated through machine learning further predict economic expansion in Hungary over the coming five years, whereas Azerbaijan is projected to encounter economic contraction. The study concludes by underscoring the importance of long-term policy measures centred on digital infrastructure, innovation potential, and human capital enhancement in order to optimise the economic outcomes of digital transformation.

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