<p>Digital transformation has emerged as a key driver of productivity growth and economic development, particularly in developing and conflict-affected economies. The purpose of this paper is to examine the effect of digital transformation on economic development in Palestine using a calibrated Constant Elasticity of Substitution (CES) production framework. A Digital Transformation Index (DTI) is constructed from six indicators capturing digital access, connectivity, and technology adoption, including internet usage, smartphone penetration, computer ownership, e-government utilization, social media participation, and artificial intelligence adoption. The index is integrated into the Total Factor Productivity (TFP) component of the CES production function to evaluate the productivity effects of digital transformation. This modeling approach provides a quantitative framework for linking digital transformation indicators with macroeconomic productivity dynamics in a structurally constrained economy. Using macroeconomic data for 2023, the model is calibrated to reproduce observed Palestinian Gross Domestic Product (GDP) and simulate alternative digital development scenarios. The results suggest that digital transformation is associated with significant improvements in TFP and generates measurable gains in economic output through efficiency improvements. Scenario simulations show that improvements in digital readiness are associated with potentially significant increases in GDP under the assumptions of the calibrated CES framework.</p>