Macroeconomic drivers of digital transformation adoption in the UAE

Abstract

The article conducts an empirical inquiry into the impact of public sector development, private sector investment, political stability, financial and banking sector development, technical and vocational education and training (TVET) expansion, and quality-of-life improvements on digital transformation (DT) adoption policy in the UAE. It uses macroeconomic time series from 1995 to 2024, covering 30 annual observations. The estimation techniques employed include the Gregory–Hansen test procedure and the ARDL cointegration method, both of which confirm an equilibrium relationship between the selected macroeconomic variables and DT adoption, with a structural break. Based on the findings of the ARDL estimation, public sector development, private sector investment, political stability, financial and banking sector development, TVET expansion, and quality-of-life improvements significantly influence DT adoption. Importantly, the ARDL diagnostic tests confirmed the validity and robustness of the study’s model. The findings indicate that UAE digital transformation is propelled by private investment, stable governance, financial sector growth, TVET, and quality-of-life improvements, while excessive or misdirected public sector expansion may inhibit the effective implementation of national DT policies. Policymakers should promote sector-specific digital transformation strategies, particularly in finance, healthcare, and education, to enhance productivity, optimize investment allocation, and support sustainable economic growth in the UAE.