Digital Connectivity, Gross Tertiary Enrollment, and Total Factor Productivity Growth in Middle-Income Economies: Implications for Sustainable Development

Whether digital connectivity and tertiary education participation are associated with productivity growth is relevant to sustainable development because it concerns conditions for more efficient growth. Using two-way fixed effects, linear interaction, and panel threshold models, this study examines the relationship between a connectivity-based digitalization measure and total factor productivity (TFP) growth in middle-income economies and whether gross tertiary enrollment serves as a linear moderator or threshold variable. The balanced panel covers 312 observations for 26 economies over 2011–2022, identified under the World Bank’s fiscal year 2011 (FY2011) historical income classification. Annual TFP growth is calculated from Penn World Table 11.0; digitalization is measured by a three-indicator principal component index. Because the two-way fixed-effects estimates are identified from limited residual country-year variation in digitalization, they concern short-run within-country associations rather than long-run cross-country differences. The digitalization coefficient is not statistically significant with country-clustered standard errors, and there is insufficient statistical support for linear moderation or a common gross tertiary enrollment threshold. Alternative measures, pandemic-year exclusions, and complementary-panel results do not change these hypothesis decisions. The findings should not be interpreted causally. Gross tertiary enrollment alone may not represent the broader absorptive capacity and complementary conditions associated with translating digital connectivity into productivity growth.