The digital economy influences the relationship between trade and sustainability in G20 economies

The rapid diffusion of digital technologies and the intensification of cross-border trade have jointly reshaped the conditions under which environmental, social and economic sustainability can be pursued. Yet the empirical literature has largely treated the digital economy and international trade as separate, additive drivers of sustainable development rather than as jointly determined and interacting forces, leaving the mechanism through which digitalisation conditions trade’s sustainability consequences poorly understood. This study addresses that gap by examining the direct and interactive associations of international trade and the digital economy with sustainable development in a panel of 19 G20 economies and the European Union (20 cross-sectional units) over 2000–2023 (480 country-year observations). Sustainable development is proxied by Hickel’s (2020) Sustainable Development Index (SDI), a composite that weighs human-development achievements (education, life expectancy, income) against ecological overshoot (CO2 emissions and material footprint); the digital economy is captured by a Digital Economy Index (DICONOMY) built from six access-, use- and skill-related indicators. The empirical strategy combines Pooled OLS, Random-Effects, Fixed-Effects and two-step System Generalised Method of Moments (system-GMM) estimators, the latter selected to accommodate the dynamic and potentially endogenous character of the trade-digitalisation-sustainability relationship. The results show that the interaction between trade and the digital economy is positive and significant in the system-GMM. These findings identify the digital economy as a conditioning, rather than a merely additive, factor in the trade-sustainability nexus, and provide governments with evidence-based grounds for pairing trade liberalisation with digital-infrastructure investment and digital-governance reform to advance the Sustainable Development Goals.