Direct and indirect effects of digital transformation on entrepreneurship

Abstract

Digitalization reshapes society, disrupting conventional business models and fostering opportunities for entrepreneurs in “digital entrepreneurship.” This study explores its direct and indirect impacts on entrepreneurship via talent and economic competitiveness. This study analyzes data from 65 developing and developed countries over six years, constructing a structural equation model, and estimating it using (Maximum Likelihood). The study observed that institutions and human development play crucial roles in fostering levels of innovation. Furthermore, human development, innovation, and institutions emerged as primary drivers propelling societies towards digital transformation. Additionally, digital transformation generates various externalities, bolstering talent competitiveness, economic competitiveness sustainability, and entrepreneurial activities. Notably, economic competitiveness sustainability fosters entrepreneurship, whereas talent competitiveness negatively influences entrepreneurial endeavors. Our mediation analysis indicates that innovation partially mediates the relationship between human development, institutions, and digital transformation. Similarly, talent and economic competitiveness sustainability also partially mediate the connection between digital transformation and entrepreneurship. Moreover, we identified the indirect positive impact of determinants of digital transformation on talent, economic competitiveness sustainability, and entrepreneurship. These findings underscore the independent variable's mechanism of action, which provides an additional dimension to understanding causes and pathways of effects and informs the identification of more effective intervention strategies.