Digital transformation, innovation, and green transitions: A panel data analysis of structural drivers in the European economy

In this paper, we investigated the structural relationships between digital transformation, sustainability-related factors, and research and development (R&D) expenditure across European Union (EU) member states. We examined how renewable energy adoption, digital connectivity, e-commerce activity, and labor taxation are associated with innovation dynamics within the broader context of the European green and digital transition agendas. The empirical analysis relied on balanced panel data covering 27 EU countries over the period 2013–2023 using harmonized Eurostat indicators. The empirical framework relied on fixed-effects panel estimation complemented by robustness procedures suitable for structurally interconnected EU macro-panel data. Additional diagnostic tests supported the stationarity and adequacy of the estimated panel specifications. The empirical findings indicated that renewable energy adoption and enterprise-level internet access were positively associated with R&D expenditure in the baseline contemporaneous fixed-effects estimations. In contrast, e-commerce-related indicators exhibited weaker and less stable relationships once broader dimensions of digital maturity and robustness specifications were considered. Labor taxation displayed a negative association with R&D expenditure in the baseline models; however, the lagged robustness estimations revealed weaker and less consistent effects over time. The additional lagged and PCSE specifications suggest that several estimated relationships become less stable once potential simultaneity and panel-specific disturbances are more explicitly addressed. The results therefore support the existence of broader structural complementarities between sustainability transition, digitalization, and innovation capacity across EU economies rather than strong unidirectional causal relationships. We also identified significant regional heterogeneity, indicating that the interaction between renewable energy development and innovation differs across European regions. Overall, the findings highlight the importance of institutionally adapted and structurally differentiated policy approaches for supporting innovation performance within the EU.