From pixels to peripheries: the digital economy and urban sprawl in a cross-country analysis

Abstract This study investigates the causal impact of the digital economy on urban expansion and fragmentation using international evidence. The study analyzes a sample of 99 countries from 2009 to 2021, with urban sprawl measured through remote sensing data from the MODIS Land Cover Product. Specifically, it employs two indicators: (i) total urban area, which presents the spatial extent of urban expansion, and (ii) the scattering index, which reflects the degree of spatial fragmentation. By applying fixed effects, random effects, and two-step system GMM estimators, the results demonstrate that while a higher digital economy index leads to an increase in total urban area, it simultaneously helps reduce urban fragmentation, which then suggests a more compact urban form. Leveraging the scope of the data, the study further examines the heterogeneous impacts of the digital economy across different income groups. The findings indicate that in high-income countries, digital economy improvements tend to mitigate urban sprawl in both spatial scale and fragmentation. In contrast, in middle- and low-income countries, such improvements are associated with greater urban sprawl.