Dual Transition Effects on Sectoral Productivity Transmission in European Economies
Keywords:
Network linkages, Input-output analysis, Productivity shocks, Digital transformation, Green transition, Structural decomposition, Dynamic panel regression, Twin transition, European Union
Abstract
The paper presents a novel analytical framework in order to follow the diffusion of sectoral productivity shocks in European economies during both digital and green transitions. We then isolate six transmission channels by using an improved structural decomposition of input-output networks, which include; direct, internal, feedback, supplier spillovers, customer spillovers, and a new dual-transition spillover. Dynamic unbalanced panel regression includes 24 sectors in 27 EU member states between 2000-2023 and shows that there is a very large heterogeneity shock propagation in transition periods.
Key results: dual transition spillovers enhance traditional network effects by 42-47 percent and digital-intensive industries by increasing upstream propagation and sustainability-oriented industries by increasing downstream transmission. The contemporary two-way transition coefficient is up to 2.34 percent, that is, much higher than traditional spillovers. Multipliers determine information services and energy as key drivers of transformation and provide spillovers that are 2.8 times greater than traditional manufacturing linkages. The temporal analysis indicates accelerating spillover effects after 2020 in line with the Recovery and Resilience Facility and the increased policies of twin-transition.
Such findings offer evidence to policymakers in Europe on the dynamics of cross-sectors, highlighting the need to have integrated digital-green transition strategies in order to drive the growth in productivity.
References
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Privara, A., & Caplanova, A. (2025). Institutions, digital investment potential and productivity growth in EU and Southeast Asia. The Journal of Risk Finance, 1–23. doi: 10.1108/JRF-04-2025-0180
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Sohag, K., Hammoudeh, S., Elsayed, A. H., Mariev, O., & Safonova, Y. (2022). Do geopolitical events transmit opportunity or threat to green markets? Decomposed measures of geopolitical risks. Energy Economics, 111, 106068. doi: 10.1016/j.eneco.2022.106068
Stergiou, E. (2024). The effect of heterogeneity on environmental efficiency: Evidence from European industries across sectors. Journal of Cleaner Production, 441, 141036. doi: 10.1016/j.jclepro.2024.141036
Tsiotas, D., GIANNAKIS, E., & PAPADAS, C. (2025). A Modularity Decomposition Model Of Evolving Input-Output Sectorial Structure. Regional Science Inquiry, 0(1), 107–133. Retrieved from https://rsijournal.eu/?p=4567
Zegrean, A., Girlovan, A., Botoroga, C.-A., & Vrabie, M. (2025). The Role of Digital Transformation in Shaping Labor Productivity across EU Member States. Proceedings of the International Conference on Business Excellence, 19(1), 4923–4934. doi: 10.2478/picbe-2025-0376
Ahmad, M., Jiang, P., Murshed, M., Shehzad, K., Akram, R., Cui, L., & Khan, Z. (2021). Modelling the dynamic linkages between eco-innovation, urbanization, economic growth and ecological footprints for G7 countries: Does financial globalization matter? Sustainable Cities and Society, 70, 102881. doi: 10.1016/j.scs.2021.102881
Aloisi, A. (2025). Integrating the EU twin (green and digital) transition? Synergies, tensions and pathways for the future of work (Issue 2025/01). Seville. Retrieved from https://hdl.handle.net/10419/322063
Barbero, J., A. Collado, L., Rodríguez-Crespo, E., & Santos, A. M. (2025). The twin transition in the European Union: assessing regional patterns of EU-funded investments. European Planning Studies, 1–21. doi: 10.1080/09654313.2025.2528882
Bertinelli, L., Cardi, O., & Restout, R. (2022). Labor market effects of technology shocks biased toward the traded sector. Journal of International Economics, 138, 103645. doi: 10.1016/j.jinteco.2022.103645
Bianchini, S., Damioli, G., & Ghisetti, C. (2023). The environmental effects of the “twin” green and digital transition in European regions. Environmental and Resource Economics, 84(4), 877–918. doi: 10.1007/s10640-022-00741-7
Capello, R., & Caragliu, A. (2024). Digital transition in a turbulent world: European regional growth opportunities in 17 years’ time. Economics of Innovation and New Technology, 1–19. doi: 10.1080/10438599.2024.2393202
Carullo, D., Di Caro, P., & Fratesi, U. (2025). The role of employment, labour productivity and trade linkages in the evolution of European regional disparities. The Annals of Regional Science, 74(1), 24. doi: 10.1007/s00168-024-01351-5
Casas, P., Christou, T., García-Rodríguez, A., Lazarou, N. J., Lecca, P., Monfort, P., & Salotti, S. (2025). The impact of innovation policy on the regional economies of Europe. Cambridge Journal of Regions, Economy and Society. doi: 10.1093/cjres/rsaf012
Cazcarro, I., Usubiaga-Liaño, A., Román, M. V., Piñero, P., Dietzenbacher, E., Rueda-Cantuche, J. M., & Arto, I. (2025). FIGARO-E3: a high-resolution extended multi-regional input-output database consistent with official statistics. Scientific Data, 12(1), 575. doi: 10.1038/s41597-025-04431-z
Demertzis, M. D. P. and N. R. (2024). Accelerating strategic investment in the European Union beyond 2026.Bruegel Report. Retrieved from https://www.bruegel.org/report/acceleratingstrategic-investment-european-union-beyond-2026
Fadinger, H., Ghiglino, C., & Teteryatnikova, M. (2022). Income Differences, Productivity, and Input-Output Networks. American Economic Journal: Macroeconomics, 14(2), 367–415. doi: 10.1257/mac.20180342
Ferrante, F., Graves, S., & Iacoviello, M. (2023). The Inflationary Effects of Sectoral Reallocation. International Finance Discussion Papers, 1369, 1–57. doi: 10.17016/ifdp.2023.1369
Ferri, G., Menghini, M., & Pini, M. (2023). Does the NRRP Speed up Firms’ Twin Transition? Empirical Evidence from Italy. SSRN Electronic Journal. doi: 10.2139/ssrn.4547105
Firoiu, D., Pîrvu, R., Jianu, E., Cismaș, L. M., Tudor, S., & Lățea, G. (2022). Digital Performance in EU Member States in the Context of the Transition to a Climate Neutral Economy. Sustainability, 14(6), 3343. doi: 10.3390/su14063343
García Casañas, C., & Kovacic, Z. (2025). Implementing the twin transitions: A critical perspective from the Spanish energy sector. Environmental Science & Policy, 164, 104012. doi: 10.1016/j.envsci.2025.104012
Giannakis, E., & Mamuneas, T. P. (2022). Labour productivity and regional labour markets resilience in Europe. The Annals of Regional Science, 68(3), 691–712. doi: 10.1007/s00168-021-01100-y
Grafström, J., & Alm, C. (2025). Diverging or converging technology capabilities in the European Union? The Journal of Technology Transfer, 50(2), 728–751. doi: 10.1007/s10961-024-10070-0
Ha, L. T. (2022). Socioeconomic and resource efficiency impacts of digital public services. Environmental Science and Pollution Research, 29(55), 83839–83859. doi: 10.1007/s11356-022-21408-2
Kılkış, Ş., Ulpiani, G., & Vetters, N. (2024). Visions for climate neutrality and opportunities for co-learning in European cities. Renewable and Sustainable Energy Reviews, 195, 114315. doi: 10.1016/j.rser.2024.114315
Kuosmanen, N. , K. V. , K. O. P. , L. J. , M. M. , P. E. , & S. A. (2023). Transition to carbon neutrality: Implications for productivity, competitiveness and investments: Vol. VNTEAS 2023:62 (VATT Institute for Economic Research, Ed.). VATT Institute for Economic Research. Retrieved from https://urn.fi/URN:NBN:fi-fe2022053039272
Leontief, W. W. (1936). Quantitative Input and Output Relations in the Economic Systems of the United States. The Review of Economics and Statistics, 18(3), 105. doi: 10.2307/1927837
Li, X., Liu, C., Zhou, J., Yan, J., & Liu, T. (2024). The Digitalization Imperative: Unveiling the Impacts of Eco-Industry Integration on Sectoral Growth and Transformation. Sustainability, 16(21), 9522. doi: 10.3390/su16219522
Lukashevych, Y., Evdokimov, V., Polukhin, A., Maksymova, I., & Tsvilii, D. (2024). Innovation In The Energy Sector: The Transition To Renewable Sources As A Strategic Step Towards Sustainable Development. AFRICAN JOURNAL OF APPLIED RESEARCH, 10(1), 43–56. doi: 10.26437/ajar.v10i1.665
Miranda-Pinto, J., Silva, A., & Young, E. R. (2023). Business cycle asymmetry and input-output structure: The role of firm-to-firm networks. Journal of Monetary Economics, 137, 1–20. doi: 10.1016/j.jmoneco.2023.05.014
Nakatani, R. (2021). Total factor productivity enablers in the ICT industry: A cross-country firm-level analysis. Telecommunications Policy, 45(9), 102188. doi: 10.1016/j.telpol.2021.102188
Privara, A., & Caplanova, A. (2025). Institutions, digital investment potential and productivity growth in EU and Southeast Asia. The Journal of Risk Finance, 1–23. doi: 10.1108/JRF-04-2025-0180
Siller, M., Schatzer, T., Walde, J., & Tappeiner, G. (2021). What drives total factor productivity growth? An examination of spillover effects. Regional Studies, 55(6), 1129–1139. doi: 10.1080/00343404.2020.1869199
Sohag, K., Hammoudeh, S., Elsayed, A. H., Mariev, O., & Safonova, Y. (2022). Do geopolitical events transmit opportunity or threat to green markets? Decomposed measures of geopolitical risks. Energy Economics, 111, 106068. doi: 10.1016/j.eneco.2022.106068
Stergiou, E. (2024). The effect of heterogeneity on environmental efficiency: Evidence from European industries across sectors. Journal of Cleaner Production, 441, 141036. doi: 10.1016/j.jclepro.2024.141036
Tsiotas, D., GIANNAKIS, E., & PAPADAS, C. (2025). A Modularity Decomposition Model Of Evolving Input-Output Sectorial Structure. Regional Science Inquiry, 0(1), 107–133. Retrieved from https://rsijournal.eu/?p=4567
Zegrean, A., Girlovan, A., Botoroga, C.-A., & Vrabie, M. (2025). The Role of Digital Transformation in Shaping Labor Productivity across EU Member States. Proceedings of the International Conference on Business Excellence, 19(1), 4923–4934. doi: 10.2478/picbe-2025-0376