The double-edged sword of digital technology: why ICT first narrows, then widens income gaps in Vietnam
Drawing on two decades of provincial data, this study finds that the link between digital development and income inequality in Vietnam is U-shaped: information and communications technology (ICT) narrows income gaps in the early stages of digital expansion, but past a certain point that equalizing effect fades and inequality begins to rise again. Digital transformation, in other words, is not automatically inclusive.
Context
Digital transformation is widely promoted as a route to more inclusive growth — cheaper information, wider market access, better public services. Yet the evidence on who actually gains remains contested, and especially thin for developing economies, where connectivity, skills, and infrastructure are unevenly distributed.
Vietnam is an instructive case: a lower-middle-income country in the middle of rapid digital expansion, with provinces at very different stages of that process. Most existing studies compare countries to each other, which averages away exactly the variation that matters for national policy. Looking inside one country instead makes it possible to ask whether the distributional effect of ICT changes as digital development deepens.
Methods
The authors assemble a provincial panel covering six biennial waves from 2012 to 2022 and combine a two-step system GMM estimator — which addresses the dynamics and endogeneity typical of inequality data — with a dynamic threshold model that allows the ICT–inequality relationship to switch once digital development crosses an estimated cut-off, rather than assuming a single constant effect.
Key findings
The relationship between ICT and income inequality is not linear: the estimates point robustly to a U-shaped pattern.
In provinces at earlier stages of digital development, more ICT goes together with narrower income gaps — but beyond an estimated threshold the equalizing effect weakens and inequality tends to increase.
Effects differ markedly from province to province, indicating that what ICT does to income distribution depends on local economic conditions and structural characteristics.
The policy implication is that digital expansion needs accompanying measures — broader access, stronger digital capabilities, and implementation adapted to local conditions — rather than being treated as inclusive by default.
Policy implications
These findings suggest that digital expansion is not inherently inclusive and must be accompanied by policies that broaden access, strengthen digital capabilities, and adapt implementation to local conditions. The study's heterogeneity results also suggest that a uniform policy approach is unlikely to be effective.
Keywords:
Income Inequality
Information And Communications Technology
Digital Divide
Threshold Effects
Vietnam
Digital Transformation
Link:
Citation:
Vo, T. T., Nguyen, T. T., Nguyen, H. B., & Phan, K. T. (2026). The double-edged sword of digital technology: U-shaped effects on income inequality in Vietnam. World Development Perspectives, 43, 100809.
