Entrepreneurial Dynamics in Emerging and Transition Economies: The Role of Digital Infrastructure, National Innovation Capacity, and Institutional Quality

Entrepreneurship plays an important role in structural transformation, employment generation, and productivity growth. This study examines how digital infrastructure, national innovation capacity, and institutional quality are associated with formal entrepreneurial entry in a balanced panel of twenty emerging and transition economies observed annually from 2006 to 2024. Principal component analysis condenses thirteen underlying indicators into three composite indexes, while the sample is divided into ten post-socialist economies and ten other emerging markets. After establishing first-order integration and heterogeneous panel cointegration, long-run associations are estimated using group-mean fully modified ordinary least squares, dynamic ordinary least squares, mean group, and pooled mean group estimators. A Hausman test assesses the common long-run restriction imposed by the pooled mean group estimator. Control-augmented fixed effects, lagged-index specifications, and the system generalised method of moments provide additional robustness checks, while Method of Moments Quantile Regression examines distributional heterogeneity. All three indexes exhibit positive and statistically significant long-run associations with new business density. The association with digital infrastructure declines monotonically across the conditional distribution, whereas that with national innovation capacity increases toward higher quantiles. These findings indicate that the relationship between entrepreneurial entry and enabling economic conditions varies systematically across the distribution of entrepreneurial activity.

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