Unlocking the Potential of the Digital Economy for Sustainable Development: Roles of Human Capital, R&D, and Green Innovation

ABSTRACT As part of its Vision 2030 initiative, Saudi Arabia has adopted digital transformation as a strategic pillar for economic diversification and sustainable growth. Substantial investments in digital infrastructure, R&D, and human capital aim to leverage the benefits of digitalization. However, the extent to which digitalization drives sustainable development across economic, social, and environmental dimensions remains underexplored. This study examines how the digital economy influences sustainable development in Saudi Arabia, emphasizing the roles of green technological innovation, R&D, and human capital. Using both an aggregate sustainable development index and disaggregated measures, the analysis finds that digitalization significantly advances economic and social development but contributes to environmental degradation. Nevertheless, green technological innovation interacts positively with the digital economy, enhancing sustainability across all dimensions by mitigating digitalization's environmental impact while amplifying its benefits. This synergy underscores the role of integrated strategies that combine digital proficiency with eco‐innovations to achieve broader sustainability gains. Similarly, R&D stimulates economic growth and human well‐being, yet its positive environmental impacts emerge only after surpassing a critical investment threshold; below this threshold, R&D can hinder environmental sustainability, underscoring the importance of targeted investments that prioritize green technologies. Human capital accumulation also fortifies the digital economy's potential to promote balanced progress. Overall, the findings underscore the need for policies that nurture green innovation, sustain R&D expenditure, and elevate human capital to maximize the digital economy's contribution to sustainable development. By fostering synergy between digitalization and eco‐friendly technological advancements, Saudi Arabia can realize Vision 2030's goals of inclusive, enduring prosperity.