The digital economy has emerged as a pivotal force in reshaping economic landscapes, particularly in developing countries striving to enhance productivity and competitiveness. This study investigates the impact of digital economy transformation, focusing on the adoption of artificial intelligence (AI) and digital tools, on labor productivity in Vietnam’s manufacturing and service sectors. Utilizing a quantitative approach, we employ a panel data model with fixed effects to analyze firm-level data from 2015 to 2023, sourced from Vietnam’s General Statistics Office and enterprise surveys. The results indicate that digital tool adoption significantly enhances labor productivity, with stronger effects in the service sector compared to manufacturing. AI adoption shows a positive but heterogeneous impact, moderated by firm size and skill intensity. Policy implications include targeted investments in digital infrastructure and workforce upskills to maximize productivity gains. This study contributes to the literature by providing empirical evidence from a developing country context, addressing gaps in understanding sector-specific digital transformation effects.