Impact of Digitalization and GDP Growth on Instigating Entrepreneurship: The Moderating Effect of Human Capital

Abstract

Digitalization has become an economic force in the modern era, restructuring traditional business models, approaches, and procedures. The embracing of widespread digital technology, along with continuous development of human capital, to promote entrepreneurship is a significant challenge. This paper investigates the effect of digitalization and GDP on entrepreneurship, as well as the moderating effect of human capital. For this purpose, fixed effect estimation technique was used on annual unbalanced panel data of 139 countries collected for a period of 9 years, that is, from 2011 to 2019. The findings show that digitalization has a positive and a statistically significant impact on entrepreneurship in the singleton model, as well as a positive and significant impact in all other models. Similarly, GDP growth also has a positive and significant effect across all the models. Human capital, proxied as tertiary school education, was also found to have a positive and significant impact on entrepreneurship. The analysis shows that the impact of digitalization is more significant in countries where tertiary education fosters the development of human capital, than in those countries that offer primary and secondary education. Furthermore, human capital also moderates the nexus between digital financial inclusion, economic growth, and entrepreneurship. The results of the regional comparison also depict that there is a strong positive and significant impact of all the proxies of digitalization and GDP growth on entrepreneurship in Europe and Central Asia, as compared to East Asia and the Pacific. These results show that the higher the level of digitalization, economic growth, and human capital, the higher the level of entrepreneurship.