Navigating the Digital Economy: Institutional Quality and Women Entrepreneurship as Catalysts for Social Sustainability

Driven by rapid advancements in digital technologies, the digital economy has transformed various aspects of human life, offering new solutions to global challenges such as disparities in education, healthcare, gender, and income equality. Meanwhile, social sustainability remains an underexplored dimension compared to environmental and economic sustainability. In this context, can the digital economy promote social sustainability? This study investigates this relationship in European economies from 2003 to 2019 based on the capability approach. A new social sustainability index is developed. By applying the Pooled Mean Group‐Autoregressive Distributed Lag method, the results reveal a significant positive effect of the digital economy on social sustainability. The results are consistent and positive across several social sustainability measures, including human development, sustainable human development, and the social sustainability index. This research further identifies institutional quality and women entrepreneurship as external conversion factors, both positively mediating the digital economy– social sustainability relationship.