Digital Economy Meets Green Industrial Transformation: New Evidence on Carbon Emissions in OECD Countries

Abstract

The digital economy and renewable energy transition are increasingly recognized as important pathways toward low-carbon development; however, their relationships with industrial activity and carbon emissions remain insufficiently understood. This study examines the associations of digital economy development, industrialization, renewable energy consumption, foreign direct investment (FDI), and trade openness with carbon dioxide (CO₂) emissions in OECD countries over the period 1999–2020. A multidimensional Digital Economy Index (DEI) is constructed using eight indicators, while an interaction between industrialization and renewable energy consumption is introduced as a proxy for green industrial transformation (GIT). The relationships are investigated using a two-step system generalized method of moments (GMM) estimator to account for emissions persistence, unobserved heterogeneity, and potential endogeneity. The reported results indicate that digital economy development and renewable energy consumption are negatively associated with CO₂ emissions, whereas industrial growth exhibits a positive association. The negative coefficient of the GIT interaction suggests that renewable energy consumption may moderate the emissions implications of industrial activity. FDI is also negatively associated with emissions, while the relationship between trade openness and emissions varies across model specifications. These findings highlight the potential importance of combining digital transformation with renewable energy deployment and industrial decarbonization strategies. The study offers policy insights for OECD economies seeking to strengthen low-carbon development through digital innovation, cleaner industrial production, and environmentally responsible investment.