Digital Transformation for Green Growth: Evidence from Micro Firms

In this paper we explore whether pursuing a digitalisation strategy, adopting advanced digital technologies, and building internal digital skills positively moderate the relationship between firms’ eco-innovation efforts and growth performance. Our econometric analysis of a sample of 5,015 micro firms from 39 countries accounts for selection bias and endogeneity via the estimation of an instrumental variable two-stage least squares (IV-2SLS) approach. The results provide evidence that eco-innovations boost firm growth when coupled with a well-defined digitalisation strategy. We also find that eco-innovations improve firm growth only for firms that adopt advanced digital technologies (such as big data and Artificial Intelligence applications) rather than basic ones. Finally, our results reveal that the positive relationship between eco-innovation and firm growth is enhanced by improvements in internal digital skills and capabilities. Our findings contribute to the literature and policy debates by underlying a new strategic alternative for micro firms that differs from traditional sole focus on eco-innovation driven growth. Instead, this paper advocates the viability and performance benefits of a twin digital and ecological transformation and showcases the need to align eco-innovation investments with digital transformation efforts for an economically successful net-zero transition.