A PESTEL analysis of generative AI in the digital economy

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Purpose The ability of generative artificial intelligence (GAI) to shift the competitive dynamics of the digital economy has rightly received a fair amount of digital ink. Yet, while scholars are critically examining the impact of GAI on competition, little attention is given to its implications of GAI on global economic development. This study aims to explore whether the surge in GAI is correlated with more economic growth and to what extent this is due to innovations that foster a competitive digital economy. Design/methodology/approach The study applies the political, economic, sociocultural, technological, environmental and legal (PESTEL) analysis to understand the multifaceted impact of GAI on the digital economy. The PESTEL analytical framework gathers information on political, economic, social, technological, environmental and legal aspects to enhance the comprehensiveness of the investigation. Data were gathered from academic literature, industry reports and expert interviews to provide a robust analysis of GAI’s multifaceted effects. Findings The results of this study highlight that GAI can provide creativity and new types of business models, but at the same time, it can create strong ethical and cybersecurity challenges. The results of the PESTEL analysis underline the importance and increased complexity of the interactions between GAI and the different areas of the digital economy. The results emphasize the urgent need for policies and industry strategies to be implemented to maximize the potential of GAI while managing its downsides. Research limitations/implications The research is limited by its focus on the PESTEL framework, which may not capture all dimensions of impact of GAI. Future research should focus on broader aspects to assess the long-term effects of GAI on economic development and digital transformation. Practical implications The study offers recommendations for exploiting the potential of GAI in the digital economy. These include developing robust cybersecurity measures, creating ethical guidelines for AI use and fostering collaborative efforts between policymakers, industry leaders and academic researchers. Originality/value The contribution of this study lies in mapping GAI to the drivers of global economic development via a PESTEL analysis, stressing the necessity for a balanced view and an approach in harnessing the power of GAI, while also negating its risks.