Digital Transformation and Entrepreneurial Innovation
Digitalization is a powerful driver of entrepreneurial innovation across developing economies. Developing Asia shows systematically weaker innovation payoffs from digitalization than Africa and the Middle East, Latin America, and emerging Europe. Governance indicators, such as government online services and e-participation, are especially important globally.
The region’s paradox reflects a translation gap: digital readiness exists, but innovation gains remain weak. Policy priorities should focus on (i) building digital and managerial skills; (ii) improving accessibility and orientation to small and medium-sized enterprises; and (iii) diffusing benefits beyond hubs and large firms.
Digital technology is reshaping economies worldwide, offering developing regions new opportunities for productivity, markets, and growth. Entrepreneurs stand to benefit most, as they are often more agile than larger firms in adopting new tools and technologies. Using individual-level data from the Global Entrepreneurship Monitor combined with domestic level indicators from the Global Innovation Index, the study analyzes nearly 70 developing economies during 2013–2022. The results show that digitalization—measured through information and communication technology (ICT) access, use, and government online services—strongly correlates with higher levels of entrepreneurial innovation.
However, developing Asia captures weaker innovation benefits compared to its peers. Despite strong scores on infrastructure and governance indicators, the region struggles to translate digital readiness into broad-based entrepreneurial outcomes. The reasons include a gap in entrepreneurs’ ability to convert digital access into innovative practices, uneven accessibility of digital governance, and structural divides that concentrate innovation gains in advanced hubs and larger firms.
The central policy challenge is not whether digitalization matters—it clearly does—but how to ensure that digital readiness translates into broad-based entrepreneurial innovation. Globally, digitalization works best when paired with effective governance and institutional support. In developing Asia, the challenge lies in bridging the translation gap through skills development, inclusive governance, and strategies to diffuse benefits beyond advanced hubs and large firms.
The findings resonate with global evidence that digital technology alone does not guarantee inclusive economic gains. Without complementary investment in skills, governance, and diffusion, digitalization risks widening divides rather than narrowing them.
