The impact of digital transformation on economic growth in South Africa

Abstract

The African continent experiences varying economic growth rates by region and multiple factors contribute to this effect. The nuance of how digital transformation impacts economic growth on a country level is of interest due to limited literature and potential insight that can be employed to eliminate socioeconomic disparities. This paper empirically reviews the impact of digital transformation on economic growth in South Africa using secondary data from the World Bank’s World Development Indicators database between 1990 and 2022. The study measures digital transformation using proxies of fixed telephone, fixed broadband, mobile cellular and internet users into an index using principal component analysis (CPA) while using real GDP per capita as a proxy for economic growth. The common literature indicates that technology impacts economic growth positively with some mixed results in other economies. The study reveals that technology as a standalone, cannot solve socioeconomic challenges if other important factors are not considered. This study employed multiple statistical techniques including regression, Augmented Dickey-Fuller (ADF) to test time series stationarity, Bound Cointegration test and Autoregressive Distributed Lag (ARDL) for further analysis. This study presents that digital transformation has a positive correlation with economic growth by reducing transaction costs, providing access and increasing productivity. However, the results indicate a short-run relationship between digital transformation and economic growth in South Africa. Due to rapid technological advancements in all sectors, the study recommends public-private partnerships and regulatory sandboxes to fast-track policy frameworks implementation.