Digital Economies and Artificial Intelligence: Unlocking Eco-Innovation in Asian Firms

Artificial intelligence (AI) is increasingly transforming firms’ innovation processes and creating new opportunities for sustainable development; however, empirical evidence on how firm-level AI capability influences eco-innovation under different digital environments remains limited. Drawing on the Natural Resource-Based View and Dynamic Capability Theory, this study examines the effect of AI capability on firm-level eco-innovation and investigates whether national digital economy development strengthens this relationship. The analysis uses an unbalanced panel of 5564 listed firms from 15 Asian economies over the period 2017–2024. Firm fixed-effects models are employed as the primary estimation approach, while moderation analysis is complemented by System GMM, propensity score matching, and Heckman two-step estimation to address potential endogeneity and sample-selection concerns. AI capability is measured using a disclosure-based index derived from textual analysis of firms’ annual and sustainability reports. The results indicate that AI capability is positively associated with eco-innovation and that this relationship is significantly stronger in countries with more advanced digital economies. These findings suggest that supportive digital ecosystems enhance firms’ ability to convert AI capability into sustainable innovation outcomes. The study contributes to the literature by demonstrating that national digital economy development serves as an important contextual condition shaping the effectiveness of firm-level AI capability in promoting eco-innovation.