CAN DIGITALIZATION REDUCE UNEMPLOYMENT IN EMERGING MUSLIM ECONOMIES? CONDITIONAL EVIDENCE

Abstract

This study examines whether digitalization contributes to reducing unemployment in emerging Muslim economies and explores the conditional roles of financial development, human capital, and economic uncertainty. Despite the rapid expansion of internet access and digital technologies, evidence on their employment effects remains inconclusive, particularly in developing and Muslim-majority countries. Using panel data from 14 emerging Muslim economies over the period 2005–2024, this study employs a Random Effects model to estimate both the direct and moderating effects of digitalization on unemployment. Internet penetration is used as a proxy for digitalization, while domestic credit to the private sector, human capital, and inflation volatility represent financial development, human capital, and economic uncertainty, respectively. The findings indicate that digitalization does not have a significant direct effect on unemployment. However, financial development significantly reduces unemployment, while human capital exhibits a positive direct relationship with unemployment, suggesting the presence of labor-market mismatches. Furthermore, the interaction analysis reveals that human capital and economic uncertainty significantly strengthen the unemployment-reducing effect of digitalization, whereas financial development does not play a significant moderating role. These results suggest that digital transformation alone is insufficient to improve labor-market outcomes and that supportive structural conditions are necessary to realize its employment benefits. The study contributes to the growing literature by providing new evidence from emerging Muslim economies and highlighting the importance of complementary factors in shaping the digitalization–unemployment nexus.