Digital transformation, institutional quality and productivity in Sub-Saharan Africa

This study investigates the impact of digital transformation, considered as a general-purpose technology, on total factor productivity (TFP) in Sub-Saharan Africa. We also explore how human capital, health systems, institutional quality, and innovation capacity moderate this relationship. This study analyzes panel data from 25 countries over the period 2005-2021, utilizing an identification strategy based on heteroskedasticity within a dynamic panel framework. The findings reveal that digital transformation has not significantly improved total factor productivity. Nevertheless, the results demonstrate that institutional quality, health systems, and innovation capabilities positively influence this relationship, thus amplifying the productivity advantages of digital adoption. The absence of a significant moderating effect of human capital indicates an ongoing skill deficit. These discoveries highlight the importance of a holistic policy approach that integrates digital infrastructure development with improvements in education, healthcare systems, and institutions to fully capitalize on the productivity gains from digital transformation in Sub-Saharan Africa. This study’s outcomes enhance our understanding of how complementary factors influence the connection between technological advancement and productivity growth in developing economies.This study shows that digital transformation in sub-Saharan Africa has yet to yield the anticipated improvements in economic productivity. Contrary to widespread expectations, the findings indicate that digital technologies become significantly beneficial only after a critical threshold of adoption is reached. Moreover, strong institutions, efficient health systems, and robust innovation capacities are essential to fully realize the potential benefits of digital tools. Paradoxically, the widespread lack of technical skills remains a major constraint on the effectiveness of these technologies. To address this, the study recommends that governments implement a comprehensive policy strategy combining investments in digital infrastructure, education reforms, institutional strengthening, and health system development. Such an integrated approach is crucial to converting digital potential into sustainable and inclusive economic growth.