Digitalization and government effectiveness: empirical evidence from global panel data

Abstract

Digital transformation is increasingly promoted as a pathway to institutional modernization, with governments worldwide investing heavily in e-government infrastructure. However, evidence about the impact of technological progress on governance is rather mixed. Current research on this topic mainly relies on cross-sectional data that confound cross-country characteristics with causal mechanisms, making it difficult to understand the internal connection between technological development and governance. In this study, the hypothesis of interest is to examine if a greater degree of digitalization of governmental institutions is related to an improvement in government effectiveness, applying a global dataset of 172 countries from 2000 to 2024. The level of digitalization is measured by the E-Government Development Index (EGDI), and government effectiveness (GE) is measured by the Government Effectiveness Index collected by the World Bank. A two-way fixed effects model leverages the within-country variation over time while accounting for time-invariant unobserved heterogeneity and exogenous shocks. The results reveal that there exists a positive and statistically significant effect of the development of e-government on the effectiveness of the government, although the magnitude of the coefficient falls sharply from 3.401 using pooled OLS to 0.551 using the preferred regression approach. The effects are not immediate; they occur mainly after a lag period of two years to four years. The institutional persistence coefficient of around 0.75 suggests that the effect of governance is historically rooted. Overall, results suggest that the digital revolution affects governance in an amplifying manner; hence, it is not about transforming institutions but amplifying their abilities.