“Digital transformation as a tool for creating an inclusive economy in Ukraine during wartime”

The russian aggression against Ukraine underscores the need to reassess regional strategies for digitalization and inclusivity. The study aims to identify strategies for enhancing these areas during wartime. Taxonomy and cluster and factor analysis methods have shown that regions with a higher level of digitalization have lower levels of poverty and unemployment. Specifically, regions in the top quartile of the digitalization index reported, on average, 12% lower unemployment rates compared to those in the bottom quartile. The analysis identifies distinct regional groupings: areas such as Zaporizhzhia, Kherson, Donetsk, and Luhansk are partially occupied and exhibiting low digitalization and inclusivity, in contrast with Mykolaiv and Kirovohrad that show moderate progress. Rural regions face a significant digital divide, with only 60% of rural households having stable internet access compared to 90% in urban areas. Factor analysis confirms that wartime conditions have accelerated digital transformation, evidenced by a 42% increase in Diia app usage from 2021 to 2023 and a rise in internet penetration from 62% in 2019 to 78% in 2023. Additionally, IT sector export revenues grew by 20% in 2022, and technology startups doubled between 2019 and 2023. The study proposes a strategic framework for regional adaptation: intensive digitalization and inclusivity for Zaporizhzhia, Kherson, Donetsk, and Luhansk regions; digitalization for Mykolaiv region; inclusivity for Kirovohrad and Zakarpattia regions; and balanced adaptation for Chernivtsi and Khmelnytskyi regions. Recommended measures include modernizing digital infrastructure, expanding educational opportunities, supporting startups, and aligning digital and social initiatives to foster regional resilience and development.


INTRODUCTION
The large-scale aggression by the russian federation against Ukraine, beginning in February 2022, has drastically altered the socio-economic landscape of Ukraine.This conflict has led to the occupation of parts of several regions, including Donetsk, Luhansk, Zaporizhzhia, and Kherson, triggering the largest migration crisis in Europe since World War II (IOM, 2024).Amid these challenges, digital transformation has emerged as a critical tool for maintaining economic stability and fostering inclusivity, enabling the country to adapt to the wartime environment while supporting displaced populations and ensuring access to essential services (Data Friendly Space, 2024).Digital technologies have become crucial in this context, swiftly adapting various sectors to the new wartime realities.Digitalization plays a key role in facilitating communication, information management, and business continuity, offering solutions that are universally applicable in any conflict or post-conflict scenario.Moreover, ensuring inclusivity during wartime involves enabling all societal segments, including vulnerable groups, to participate in economic life.

LITERATURE REVIEW AND HYPOTHESIS
Digital transformation and resilience strategies are pivotal for fostering an inclusive economy amid the ongoing war.Data Friendly Space (2024) provides an extensive overview of the humanitarian crisis in Ukraine, detailing the socio-economic repercussions of the conflict.The report emphasizes the significant displacement of the population and the ensuing strain on Ukraine's economic and social infrastructure.The analysis underscores the necessity for immediate and long-term economic recovery strategies, particularly through international support and digital infrastructure development.IOM (2024) offers critical insights into internal displacement patterns in Ukraine, highlighting the economic disruption caused by the war.The findings on population movement and displacement are essential for understanding the economic challenges and opportunities in postwar recovery, including the role of digital tools in tracking and managing these demographic shifts.
Gasanov et al. (2024) discuss the transformation of Ukraine's budget system under extraordinary challenges.The article underscores the importance of adaptive fiscal policies and the integration of digital technologies in enhancing budgetary efficiency and transparency, which are crucial for sustaining an inclusive economy in the face of ongoing war.Lytvyn  The analysis underscores the pivotal role of digital transformation in fostering economic resil-ience and inclusivity in Ukraine, especially in the face of war.By accelerating the adoption of digital technologies, the country has demonstrated its capacity to maintain essential services, stimulate innovation, and support economic growth.The rapid evolution of Ukraine's digital landscape, characterized by advancements in IT, e-government, and digital finance, has been instrumental in enhancing accessibility and inclusivity for a broader population segment.
This study, focused on digital transformation as a tool for creating an inclusive economy in Ukraine during wartime, aims to identify strategies that can enhance both digitalization and inclusivity in these challenging conditions.The findings and insights gained can guide Ukraine and other countries experiencing similar conflicts, thereby broadening the applicability and significance of this study.The hypothesis is as follows: H1: In crises, the digital transformation of the Ukrainian economy can be strengthened due to the increased demand for digital tools and services, leading to greater diversification, inclusivity, and accessibility for all segments of society.

METHODS
The Inclusive Development Index (IDI), developed by the World Economic Forum (WEF, 2018), is a comprehensive tool designed to measure regional inclusivity by integrating economic, social, and environmental factors.The index is structured around three key categories: economic, social, and environmental indicators.In the pre-war context, the IDI focused on employment rates, income distribution, access to education, healthcare availability, and environmental quality.However, during wartime, the emphasis shifted to labor market resilience, access to emergency services, displacement and migration patterns, and environmental impacts.This approach enables a nuanced analysis of how crises influence inclusivity across various dimensions of development.
Comparing these indicators reveals significant shifts during the conflict, such as changes in economic activities, social disruptions, and environmental degradation.This analysis highlights critical areas for intervention to ensure inclusivity in Ukraine during and after the conflict (Shcherbak et al., 2024).
A comprehensive framework based on key indicators is recommended to evaluate the inclusivity of Ukrainian regions, particularly during wartime.These indicators are relevant for both normal conditions and during crises, including armed conflict.The framework categorizes indicators into three groups, addressing crucial aspects of inclusivity.
The growth and development indicators include: • IDI 11 -Gross Regional Product (GRP) per capita, reflecting the economic development level of a region (Babchynska et al., 2024).
• IDI 13 -Expected healthy life expectancy, representing the health status of the regional population (Anderson et al., 2021).
• IDI 14 -Employment rate of the working-age population, reflecting the level of population involvement in economic activities (Carey & Rabesona, 2003).
• IDI 22 -Poverty rate, indicating the proportion of the population living below the poverty line (Carey & Rabesona, 2003).
While this analysis leverages readily available national statistics for indicators such as Gross Regional Product (GRP) per capita, labor productivity, and others (as detailed in Appendix A, Table A1), the methodological approach is carefully adapted to ensure these metrics' relevance and accuracy across different scenarios, including wartime.A focused set of indicators relevant to assessing inclusivity during both peacetime and wartime has been selected.This selection prioritizes factors directly influenced by crises, such as economic activity, health status, and labor participation (IDI 11 , IDI 12 , IDI 13 , IDI 14 , IDI 21 , and IDI 22 ).A novel methodology is proposed that integrates key indicators with a tailored factor analysis approach.This method evaluates regional digitalization and inclusivity across various conditions, including wartime, offering a unique perspective on how conflict impacts regional strategies.
This study builds on national statistics to assess regional digitalization using the framework proposed by Kolodiziev et  Second, the indicator system is integrated with a factor analysis approach similar to that used for assessing inclusivity.This combined analysis evaluates regional digitalization levels and uncovers relationships between various aspects of digitalization during wartime.
These adjustments aim to provide a nuanced understanding of digitalization in Ukrainian regions under wartime pressures.Specific values for these indicators are detailed in Appendix A, Table A2.
To assess the levels of inclusivity and digitalization of Ukrainian regions during the war using the taxonomy methodology, two composite indicators are used: the Inclusivity Index (IDI) and the Digitalization Level Rating (DLR).These indicators are calculated based on a set of subcomponents.Table 1 shows the developed methodology for assessing the levels of inclusivity and digitalization of Ukrainian regions during the war.

Calculation steps Calculation algorithms Interpretation of results
Step , .

RESULTS
Figure 1 and Tables 2-4 present the levels of inclusivity and clustering of Ukrainian regions during the war period (2022-2023) using the taxonomy methodology.
Figure 1 shows that all regions of Ukraine are divided into three groups according to the inclusion category.The regions with an average level of inclusion 0.5≤IDI<0.75include 11 regions of cluster 1 (Table 2).Regions with a medium level of inclusion include Ternopil, Chernivtsi, Ivano-Frankivsk, Rivne, Poltava, Volyn, Khmelnytskyi, Cherkasy, Odesa, and Zhytomyr regions.The regions with low level of inclusion IDI<0.5 include seven regions of cluster 2 (Table 3).The regions with a low level of inclusion include Zaporizhzhia, Kirovohrad, Mykolaiv, Chernihiv, Zakarpattia, Kherson, Sumy, Donetsk, and Luhansk regions.The regions with a high level of inclusion IDI≥0.75 include five regions of cluster 3 (Table 4).The regions with a high level of inclusion include Kyiv City and Lviv, Kyiv, Kharkiv, and Dnipropetrovsk regions.The results of calculating the levels of digitalization and clustering of Ukrainian regions during the war using the taxonomy methodology are presented in Figure 2 and Tables 5-7.
Figure 2 shows that all regions of Ukraine are divided into three groups according to the digitalization category.Thus, 14 regions of cluster 1 show an average level of digitalization 0.5≤DLR<0.75(Table 5).Regions with an average level of digitalization include Ternopil, Chernivtsi, Ivano- Frankivsk, Khmelnytskyi, Rivne, Poltava, Volyn, Kirovohrad, Cherkasy, Zhytomyr, Chernihiv, Zakarpattia, and Sumy regions.The regions with a high level of digitalization DLR≥0.75 include six regions of cluster 3 (Table 7).The regions with a high level of digitaliza-tion include Kyiv City and Lviv, Kyiv, Kharkiv, Dnipropetrovsk, and Odesa regions To build a matrix of the positioning of regions in the coordinate system "Level of inclusion (OX)-Level of digitalization (LS)," a comprehensive clustering of both regions was carried out (Figure 3).
The k-means clustering analysis successfully categorized Ukrainian regions into distinct groups based on their combined inclusivity (IDI) and digitalization (DLR) scores.While specific region names and symbols are omitted for brevity, the resulting clusters represent the following adaptation patterns visualized in Figure 4 and summarized in Table 8.The study offers a nuanced analysis of regional disparities in inclusivity and digitalization across Ukraine, identifying distinct clusters and formulating tailored adaptation strategies (Table 9).Next, Table 10 offers the ways the pro-posed adaptation principles can be applied to specific Ukrainian regions.talization indicators, offers a tailored approach for regional adaptation during wartime.Each strategy targets specific regional strengths and weaknesses, enabling effective resource allocation and impactful interventions.Adopting these strategies will help Ukrainian regions navigate wartime challenges and drive future digital and inclusive growth.

The proposed framework, utilizing k-means clustering and analysis of inclusivity and digi-
The factor analysis results presented in Table 11 support the hypothesis that wartime conditions have accelerated digital transformation and enhanced inclusivity in Ukraine.Two primary factors emerged from the analysis.
Factor 1 is digitalization and economic inclusivity.This factor highlights the negative correlation between traditional economic indicators (GRP per capita, labor productivity, healthy life expectancy, and employment rate) and digitalization indicators (internet access, broadband penetration, mobile device usage, and ICT Development Index).
The negative correlations suggest that while economic conditions may have declined during wartime, digitalization has seen significant growth.This indicates that digital technologies have played a crucial role in mitigating the negative economic impacts of the conflict and promoting economic resilience.Factor 2 is socio-economic stability.This factor reveals a positive correlation between traditional economic indicators and socio-economic stability.The increase in income inequality, poverty rates, wealth inequality, greenhouse gas intensity, public debt, and demographic dependency ratios indicate the strain that wartime conditions have placed on Ukraine's socio-economic fabric.
Digitalization and economic inclusivity factor reveals a complex relationship where wartime economic decline coincides with increased digitalization.Although traditional economic indicators show negative correlations, digitalization metrics such as internet access and mobile usage exhibit a surge.This indicates a wartime adaptation with a heightened demand for digital services.Socioeconomic stability factor highlights worsening socio-economic conditions, such as income inequality and public debt.However, the negative correlations with digitalization indicators suggest that increased digital access can improve inclusivity even amid these challenges.The analysis confirms that wartime pressures drive digital transformation in Ukraine, leading to increased inclusivity.
Supporting data, such as a 42% rise in the Diia app usage and a 20% increase in IT sector export revenues, further validate this trend.Despite the socio-economic disruptions, the growing reliance on digital tools aligns with the hypothesis that wartime conditions foster digital adaptation and inclusivity.
Overall, the analysis suggests that transformation has been a driving force in mitigating the negative economic impacts of the war.While the war has negatively affected socio-economic stability, digitalization has played a role in cushioning these effects.The increased use of digital technologies has contributed to greater inclusivity by providing access to essential services and economic opportunities.
It is noteworthy to note that the analysis is based on data from the war period, and the long-term impacts of these trends may still be unfolding.Further research is needed to fully understand the lasting effects of digital transformation on Ukraine's economy and society in the post-conflict era.However, the analysis also acknowledges the challenges of translating digital transformation into sustained competitive advantage.While increased digital adoption presents opportunities, the broader socio-economic disruptions caused by the conflict may counteract these benefits.This is in line with Brown's (2013) observations that socio-economic data need to be carefully considered when assessing the impact of digital transformation on social mobility.The ongoing challenges, such as reduced economic stability and increased inequality, require strategic planning and investment to ensure that digital tools contribute to long-term inclusivity and resilience, particularly by diversifying the range of digital services and expanding their accessibility to all segments of society.
Overall, the findings confirm that wartime conditions in Ukraine have acted as a catalyst for digital transformation, leading to increased inclusivity through greater reliance on a diverse range of digital tools and services.The growth in digital connectivity and the IT sector's resilience demonstrates that digital transformation is not only feasible but also crucial in times of conflict.However, addressing the broader socio-economic challenges remains essential for ensuring that these advancements translate into sustained benefits for all segments of society.

CONCLUSION
The purpose of this study was to analyze the role of digital transformation in ensuring Ukraine's inclusive economic development in the context of military conflict.The study supports the hypothesis that during crises, the digital transformation of the Ukrainian economy can be strengthened due to increased demand for digital tools and services, leading to greater diversification, inclusivity, and accessibility for all segments of society.
The analysis reveals significant regional disparities in digitalization and inclusivity across Ukraine during the war.Specifically, regions with higher levels of digitalization demonstrate lower poverty and unemployment rates, indicating that digital transformation can play a vital role in mitigating the negative socio-economic impacts of the conflict.For example, regions in the top quartile of the digitalization index, such as Kyiv City and Kyiv, Kharkiv, and Dnipropetrovsk regions, reported, on average, 12% lower unemployment rates compared to those in the bottom quartile.
Cluster analysis further identifies distinct regional groupings based on their progress in digitalization and inclusivity.While regions like Mykolaiv and Kirovohrad show moderate progress, others, such as Zaporizhzhia, Kherson, Donetsk, and Luhansk, continue to face significant challenges, particularly regarding digital access and inclusivity.The digital divide remains pronounced, with only 60% of rural households having stable internet access compared to 90% in urban areas.This variability highlights the need for region-specific strategies to address these challenges effectively.
Factor analysis confirms that wartime conditions have accelerated digital transformation in Ukraine.Key indicators include a 42% increase in the usage of the Diia app from 2021 to 2023, a rise in internet penetration from 62% in 2019 to 78% in 2023, a 20% growth in IT sector export revenues in 2022, and the doubling of technology startups between 2019 and 2023.These data reflect a significant shift toward digital tools and services, supporting the hypothesis that crisis conditions can drive rapid digitalization.
Based on these findings, the study proposes a tailored regional adaptation framework.Regions like Zaporizhzhia and Kherson require intensive digitalization and inclusivity enhancement, focusing on internet expansion, digital education, and startup support.Mykolaiv needs improved digitalization through internet subsidies, digital literacy training, and cybersecurity measures.Regions like Kirovohrad and Zakarpattia prioritize inclusivity, emphasizing social protection, SME support, and housing subsidies.Chernivtsi and Khmelnytskyi demand a balanced approach, combining digital and social strategies through public-private partnerships.
While the digital transformation of Ukraine has accelerated due to wartime conditions, ensuring sustainable and inclusive development requires a balanced approach that addresses both digital and socioeconomic challenges.Tailoring strategies to the unique characteristics of each region is essential for enhancing regional competitiveness and improving the overall quality of life.

Figure 1 . 2 -
Figure 1.Graph of k-means of clustering of Ukrainian regions during the war based on inclusion

Figure 2 .
Figure 2. Graph of k-means of clustering of Ukrainian regions during the war based on digitalization

Figure 3 .
Figure 3. Comprehensive clustering of regions by digitalization and inclusion attributes

Figure 4 .
Figure 4. Matrix of positioning of Ukrainian regions by digitalization and inclusion attributes

Table 1 .
Methodology for assessing equal inclusiveness and digital transformation of the regions of Ukraine in the minds of the crisis Source: Derzhstat data; World Bank data; World Health Organization data; Ministry of Environmental Protection and Natural Resources (n.d.);Government Portal (n.d.); Global Edge (n.d.); UNDP (n.d.).
Collect the values of the IDI ij indicators for each region i and each indicator j 1.2 Normalize the value of each IDI ij indicator to bring it to the same scale.The min-max normalization method is used: Collect DLR ij indicator values for each region i and each indicator j 2.2.Normalize the value of each DLR ij indicator to bring it to the same scale.The min-max normalization method is employed: ∑where i is the region; j is the digitalization indicator.3.1.The k-means method is employed for clustering.The number of clusters is selected based on specific criteria .3.2 Determine the initial centroids: µ 1 , µ 2, . . .µ k 3.3.Each region to the nearest centroid is selected based on Euclidean distance:

Table 2 .
Composition of the first cluster based on inclusion

Table 3 .
Composition of the second cluster based on inclusion

Table 4 .
Composition of the third cluster on the inclusion category

Table 5 .
Composition of the first cluster based on digitalization

Table 6 .
Composition of the second based on digitalization

Table 7 .
Composition of the third cluster based on digitalization

Table 8 .
Summary of clustering analysis

Table 9 .
Regional adaptation principles

Table 10 .
Regional strategies for digital transformation and inclusivity

Table 11 .
Results of factor analysis