ABSTRACT This paper examines the threshold‐dependent effects of Industry 4.0 on structural transformation across developing economies in Africa, Asia, the Americas, and Oceania over the period 2005–2023. It explores how international trade in information and communication technology services (ITICT services) and information and communication technology goods as a percentage of total trade (ICT goods % Trade) influences economic diversification, conditional on different levels of digital development. Employing dynamic panel threshold regression models, the analysis uncovers nonlinear relationships between digital integration and structural transformation. The results indicate a dual‐natured relationship marked by critical tipping points in digital integration. At lower levels of digital development, the expansion of ITICT services exerts a negative and statistically significant effect on diversification. Once a higher level of digital integration is attained, ITICT services contribute positively to diversification, particularly in economies characterized by rising income levels, increasing urbanization, and greater macroeconomic stability. For ICT goods % Trade, the findings show that trade integration supports structural transformation at early stages of digital development, while at more advanced stages, the impact weakens and becomes adverse, pointing to potential risks of overspecialization and growing technological dependence. In addition, the effects of foreign direct investment and inflation are shown to be regime dependent. Beyond structural diversification, the findings suggest that when digital integration is combined with adequate absorptive capacity and institutional readiness, Industry 4.0 technologies can promote eco‐innovation, resource efficiency, and more sustainable supply chain practices, thereby linking digital transformation to broader environmental and sustainability strategies.
Amzil et al. (Fri,) studied this question.