Annex

• Author: Petropoulos, Georgios; Marcus, J. Scott; Yeung, Timothy
• Pages: 85-86

IPOL | Policy Department for Economic, Scientific and Quality of Life Policies

85PE 631.044

ANNEX

In this annex, we present a preliminary top-down estimation of the impactof elements of digital

readiness, as expressed by theDigital 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

fixed-effect model using ordinary least squares (OLS). Reduced form regression is preferred because it

is easy to understand and compare. The inclusion of several proxy variables in a single equation

enablesus to control fordifferent factors at the same ti me. The objectiveisto estimate the his to ri cal

contribution of improvements in the digital economy and society to national income, and to give a

rough pre dictionof expected further gainsif 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 intofive, but its main disadvantage i s

its short history.59Our 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, suchas

consum pti on of onli ne cont ent, onli ne shop ping and banki ng.

•Integration of Digital Technology by Businesses (DESI4)measures the digitisation of

businesses and e-commerce.

•Digital Public Services (DESI5)measures the digitisation of public services, focusing on

eGovernment and eHealth.

The regression seeks to explain (the natural logarithm of) GDP per capita usingthese five DESI

indicators as explanatory variablesin a fixed-effect regression of 112 observations.60Only

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 discardConnectivity from the equati on and re-estim ate the coefficients of other indicatorsas

shown in column 2, only theDigital Public Services indicator is signifi cant at the 0.05 le vel. This

second specification may be preferablebecause it explains more of the between-country var iations in

GDP p er cap ita (i.e. provides for a greater R-s quared).

59See https://ec.europa.eu/digital-single-market/en/desi.

60 GDP (chain linke d volumes, index 2010=100) and population are based on Eurostat.