Geopolitical risk inhibits enterprise digital transformation: evidence from European panel data

This letter investigates the differential effects of geopolitical risk (GPR) and trade policy uncertainty (TPU) on enterprise digital transformation across 26 European countries over 2015–2024. Two complementary panels – ERP adoption across nine sectors and e-commerce across three firm-size classes – are exploited via panel fixed-effects estimation with Driscoll – Kraay standard errors. GPR emerges as a robust barrier to capital-intensive digitalization, ranking as the second most important determinant after GDP per capita. By contrast, TPU triggers adaptive e-commerce expansion among large firms while small firms contract. These asymmetric effects are interpreted through a geopolitical digitalization dilemma: geopolitical crises simultaneously increase both the need for and the risk of digital investment through energy cost shocks, problems with cybersecurity, and collapse of planning horizons.