AuthorPetropoulos, Georgios; Marcus, J. Scott; Yeung, Timothy
IPOL | Policy Department for Economic, Scie ntific and Quality of Life Policies
85 PE 631.044
In thi s annex , we present a preliminary top-down estimation of the impact of elements of digital
readiness, as expressed by the Digital Economy and Society Index (DESI), on G DP. We rely on a simple
reduced-form model in which Gross Domestic Product (GDP) per capita is regressed on DESI by a
fixe d-effect model using ordinary least squares (OLS). Reduced form regression is preferred because it
is e asy to unde rstand and comp are . The i nclusion of s eve ral proxy variables i n a singl e e quation
enables us to control for different factors at the same ti me. The objective is to estimate the his to ri cal
contribution of improvements in the digital economy and society to national income, and to give a
rough pre diction of expected further gains if the tre nd conti nues.
The Digital Economy and Society Index (DESI) is a composite index that summarises indicators of digital
performance of Member States in five dimensions: Connectivity, Human Capital, Use of Internet,
Integration of Digital Technology, and Digital Public Services. The advantage of using DESI is it s hi gh
level of aggregation that consistently groups various indicators into five, but its main disadvantage i s
its short history.59 Our analysis utilises the five main categories of DESI from 2014 to 2017 across 28
Member States. The five categories are listed below:
Connec tivi ty (DESI 1) measu res t he dep loyment of b roadband i nfrastructure and its quality.
Human Capital/Digital Skills (DESI2) measures the skills needed to take advantage of the
possibilities offered by the digital economy.
Use of Internet Services by Citizens (DESI3) accounts for a variety of online activities, such as
consum pti on of onli ne cont ent, onli ne shop ping and banki ng.
Inte grati on of Digital Technology b y Busi nesses (DESI4) measures the digitisation of
businesses and e-commerce.
Digital Public Services (DESI5) measures the digitisation of public services, focusi ng on
eGovernment and eHealth.
The regression seeks to explain (the natural logarithm of) GDP per c apita using these five DESI
indicators as exp lanatory var iabl es in a fixed-effect regression of 112 observations.60 Only
Connec tivi ty can s ignifi cantl y exp lain pe r capita i ncome, as de taile d in col umn 1 of Table 9.
If we discard C onnectivi ty from the equati on and re-estim ate the coefficients of other indicators as
shown in c olum n 2, onl y the Digital Public Services indicator is signifi cant at the 0.0 5 le vel. This
second specification may be preferable because it explains more of the between-country var iations in
GDP p er cap ita (i.e. provides for a greater R-s quared).
59 See https://ec .europa.e u/digital -sing le-mark et/ en/desi .
60 GDP (chain linke d volumes, index 2010=100) and population are based on Eurostat.

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