Faculty & Research -Will the rural–urban digital divide favor cities in the twin transition?

Will the rural–urban digital divide favor cities in the twin transition?

The transition toward a digital and sustainable economy – the twin transition – is top list in the EU policy agenda. A recent study by Antonio Vezzani of RSB with Luca Cattani and Sandro Montresor of the Gran Sasso Science Institute (Italy) alerts about a possible lower effectiveness of twin-transition policies in rural contexts compared to urban ones, with the risk of accentuating gaps between different areas.

Firms’ eco-innovation is a crucial leverage of environmental sustainability

The International Energy Agency warns that to achieve the net-zero transition in 2050 about half of the CO2 emissions reduction should come from clean technologies that have yet to be developed.

Nowadays, firms should both develop or adopt new digital technologies to stay competitive and reduce their environmental impact. The twin-transition requires effective supporting measures that account both for the environmental threats and for the opportunities brought about by the deployment of the Industry 4.0. Understanding the link between Industry 4.0 and environmentally friendly innovations is crucial in a moment where the net-zero transition is imperative to avoid catastrophic climate change consequences.

What is Industry 4.0? The integration of digital technologies like Internet of Things (IoT), cloud computing and analytics, and AI and machine learning into firms’ production and operations.

On the one hand, the diffusion of new digital technologies can have harmful consequences on rare input materials depletion, energy demand and material consumption, electronic waste generation and disposal; this can eventually lead to an increased digital carbon footprint.

On the other hand, Industry 4.0 technologies offer important opportunities to improve the efficiency of production, distribution and consumption modes, as well as to facilitate environmental innovation.

Does firms’ location affect their capability to leverage digitalization for eco-innovating?

Little if no attention has been paid so far to the spatial context in which firms facing the twin-transition are located. As a result, there is very few knowledge about the geography of the twin-transition.

Previous research shows that the benefits of digitalization to innovate are greater in dense digital ecosystems. Indeed, in urban areas firms can take advantage of agglomeration economies and larger networks of local stakeholders.

Are urban firms advantaged with respect to rural ones in benefiting from digitalization to introduce innovations with environmental benefits (e.g., energy and resource efficiency)?

Our study provides evidence on the link between digitalization and eco-innovation comparing firms located in European rural and urban areas.

The digital and green divide between rural and urban areas

Rural areas suffer from a delay in digitalization with respect to urban ones, both considering digital hardware (e.g., broadband diffusion) and software use (e.g., basic digital skills).

We find that a rural-urban divide emerges also when considering the integration of Industry 4.0 technologies in production processes.

However, our findings do not confirm the prevailing view of cities as innovation machine. When considering the introduction of innovations with environmental benefits, firms in rural areas outperform those located in cities.

This is in line with a systemic view of innovation that does not occur in isolated urban contexts, but within broader spatial systems composed by firms from different areas that interact without a predetermined geographical hierarchy.

Will the digital divide favor urban firms in the twin transition?

Our results confirm that Industry 4.0 technologies favor the introduction of eco-innovations but also show that the twin transition works more for firms in urban than in rural areas.

A higher endowment of infrastructures, diverse skills and competencies facilitate the constitution of digital ecosystems that favor knowledge spillovers and interoperability, which in turn make digital technologies more effectively exploited to eco-innovate.

In other words, the digital divide works against firms located in rural areas when considering the introduction of environmentally friendly innovation.

Digitalization is likely to further exacerbate gaps between rural and urban areas.

Policies need rural proofing.

Policies and rural proofing, not only to close the increasing territorial gaps

Leave no one behind is the central, transformative promise of the 2030 Agenda and the Sustainable Development Goals. At the territorial level the principle is incapsulated in the target of a more cohesive EU.

Rural areas have historically suffered from a structural delay with respect to urban ones in facing transitions, such as (de-)industrialization, financialization and globalization of modern economies. The digital transition is not different and it is generating disparities across places, possibly accentuating the peripherality of the places that do not matter.

Recently the European Commission has recommended to policymakers the rural proofing of policies. We stress the importance that this does not remain only another item on the policy wish list.

The digital transition is a reality and how to make it work to boost environmentally friendly innovations is crucial to achieve the net-zero transition in 2050.

Guaranteeing that the twin-transition equally in different areas is not just about equity but also and overall, about the sustainability of the whole economic system.


We use firm micro-data from the EU’s Flash Eurobarometer on ‘SMEs, Start-ups, Scale-ups and Entrepreneurship’, which covers about 14,000 firms across 36 European countries.

To address possible issues deriving from the cross-sectional nature of the data we run seemingly unrelated bivariate probit regressions to model a firm decision to invest in digital technology and/or introducing an eco-innovation; we also perform a battery of robustness checks that confirm our main results.

Applications and beneficiaries

Firms and policymakers should manage the digital and environmental transitions in a moment of limited resources.

Closing the gap in the adoption of Industry 4.0 technologies between rural and urban areas should gather more prominence in the policy agenda to avoid a further widening of territorial inequalities.

In designing targeted twin-transition policies, policymakers should prioritize digital technologies more conducive to eco-innovation and the specific need of firms located in rural areas.

Reference to the research

Cattani L., Montresor S., Vezzani A. (2023). Firms’ eco-innovation and Industry 4.0 technologies in urban and rural areas. Regional Studies, 1-13.

Read the research paper

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