Supporting Entrepreneurship

This research examines how institutions, entrepreneurial ecosystems and digital transformation influence the quality, rather than simply the quantity of entrepreneurship. Drawing on evidence from both advanced and developing economies, it identifies the policy conditions that enable entrepreneurs to build productive firms and highlights why some regions benefit far more from entrepreneurship than others.

The findings show that strong institutions, human capital and digital capabilities are critical for productive entrepreneurship and sustainable economic growth. They provide practical evidence to help policymakers strengthen entrepreneurial ecosystems, improve digital transformation strategies and support businesses with the greatest potential to grow, export and create high-value innovation.

Research

This research evaluates how institutional quality and digital transformation determine the quality and scalability of entrepreneurship across both advanced and developing economies. By moving beyond simple start-up counts, the analysis clarifies the mechanisms that allow firms to innovate, export and grow.

Institutional Drivers and the Formalisation Challenge
The research identifies a direct link between the rule of law, property rights and regulatory efficiency in determining where entrepreneurial talent is allocated.

• Formalisation Incentives: Stronger institutions increase the expected returns of registering a business, encouraging high-potential founders to enter the formal sector.
• The Informality Trap: In weak institutional environments, widespread informality creates a "discouragement effect" that suppresses the growth ambitions of formal entrepreneurs.
• Productivity Gains: Improving institutional framework conditions yields the highest marginal gains in developing economies, specifically boosting innovation and export.

Ecosystem Depth and Spatial Scaling
High-impact ventures scale most effectively within dense regional clusters or "hotspots".

• Reinforcing Mechanisms: Success is driven by five pillars: knowledge spillovers, human capital depth, capital density, institutional thickness, and digital complementarity.
• Quality over Quantity: Policies that prioritise ecosystem depth, such as strengthening translational research anchors and local risk capital, are more effective for scaling than increasing start-up counts.

Digital Transformation and the Translation Gap
Drivers for digital transformation have shifted from basic access to sophisticated human capabilities.

• From Access to Skills: While infrastructure drove the initial "breakaway phase" (2010–2015), human capital and digital literacy are now the primary engines of the "catch-up phase" (2016–2021).
• Governance Matters: Digital governance, including online government services and e-participation, are more powerful drivers of innovation than internet access alone.
• Regional Paradox: In regions like developing Asia, a "translation gap" exists where high digital readiness does not reach the wider entrepreneurial base, leaving innovation concentrated in large firms and urban hubs.

Policy Recommendations

• Prioritise "ecosystem depth" and scaling capacity over the count of new start-ups. Policy should shift from subsidising entry to strengthening the five pillars of growth: knowledge spillovers, human-capital depth, capital density, institutional thickness and digital complementarity. This involves investing in translational research anchors and commercialisation brokers that bridge the gap between research and market application.
• Strengthen the rule of law and property rights to transition high-potential entrepreneurs from the informal to the formal sector. Secure property rights and reliable contract enforcement increase the expected returns of formalisation. Reducing administrative costs further mitigates the "discouragement effect" where informal competition suppresses the growth aspirations of formal ventures.
• Target "digital absorptive capacity" by pairing infrastructure investments with advanced managerial and technical skills training. Connectivity alone does not guarantee innovation; in regions like developing Asia, a translation gap exists where digital readiness fails to reach the wider entrepreneurial base. Policies must move beyond building access to fostering the specific skills and inclusive digital governance, such as e-participation, that enable small firms to adopt technologies effectively.
• Localise "smart" risk capital and encourage the circulation of experienced talent to stimulate regional hotspots. Governments should incentivise local early-stage funds and angel networks, as physical proximity remains critical for effective deal flow and value-added governance. Additionally, leveraging returnee entrepreneurs and global diaspora networks can catalyse local innovation by transferring tacit knowledge and scaling expertise.
• Adopt a "Quality Entrepreneurship Scorecard" to monitor innovation, export propensity and high-growth ambitions. Policy should replace simple registration metrics with indicators that track R&D intensity, innovation rates and growth expectations. This evidence-based approach ensures public resources are directed toward productive ventures that contribute most significantly to total factor productivity and long-term growth.