The Institutional Trilemma of Sustainable Development: Reconciling Digitalization, Entrepreneurship, and Green‐Inclusive Growth

ABSTRACT This study investigates the institutional trilemma of sustainable development by assessing the impact of digitalization, entrepreneurship, and related structural factors on green‐inclusive growth in five selected E7 economies for the period 2000–2023. Adjusted Net Savings with damage of particulate‐emission is a measure of green‐inclusive growth. The empirical analysis relies on second generation panel methods, including tests for cross‐sectional dependence and slope heterogeneity, CIPS and CADF unit‐root procedures, Westerlund cointegration analysis, Method of Moments Quantile Regression and Mean Group estimation as robustness checks. The results show that there is cross‐sectional dependence, heterogeneous slope coefficients, and a stable long‐run relationship between the variables. The mobile connectivity, domestic credit to the private sector (DCP) and self‐employment make positive contributions to the green‐inclusive growth over the studied quantiles. Internet use and renewable‐energy consumption have negative impacts on the green‐inclusive growth. Trade openness does not show a consistently significant effect on green‐inclusive growth. The robustness results also indicate that some of the relationships are country‐specific, emphasizing the heterogeneous nature of sustainable‐development dynamics. Taken together the results suggest that digitalization and entrepreneurship can contribute to sustainable development, if supported by efficient banking systems, environmentally orientated infrastructure and inclusive policy frameworks. Thus, policies should seek to improve sustainable digital infrastructure, channel credit to productive activities, stimulate entrepreneurship and increase the effectiveness of the renewable‐energy transition.