ICT and New business formation in Low and Lower middle-income countries

Entrepreneurship is considered as important factor of economic growth and development and has recently gained the attention of politicians and policy makers in developed and developing countries alike. Yet the existing literature of entrepreneurship development is concentrated in developed countries. This study sheds light on what drives entrepreneurial development in the form of new business formation in low and lower middle-income countries. Investigation of the abilities of individuals to spot entrepreneurial opportunities has been the focus of previous studies of entrepreneurship. Recently, the focus of entrepreneurship studies has shifted towards exploring the role of knowledge spillovers and complementarities in opening entrepreneurial opportunities. ICTs serve as the main tools of knowledge management and diffusion in today’s knowledge based and globalized economies. The aim of the study is to investigate the role of ICTs in fostering new business creation in the low and lower middleincome countries. It also attempts to identify which forms of ICT are most important to which regions. The role of the institutional factors namely business regulatory frameworks, transparency and accountability of the public sector, cost of start-up procedures, access to finance and time to start a business are analysed. The study uses the World Bank development indicators and doing business datasets for 42 low and lower middle-income countries. The data is analysed using IV fixed effects and GMM regression techniques. The study finds that internet, measured by density of fixed broadband subscriptions, has positive effect on new business formation in low and lower middle-income countries. This indicates that entrepreneurial knowledge could be disseminated through usage of ICTs which intern promotes exploitation of new business opportunities. This finding supports the theory of opportunity entrepreneurship. Dissection of the results by region shows that access to internet can foster entrepreneurship in Asia while access to ICT goods is important in Africa. This could be due to relatively more pronounced knowledge spill-over in Asia because of the existence of large modern industries in countries like Japan, Korea and China, while improving data management and communications using computer and cell phone, for example, is more important in Africa. The result in general supports the entrepreneurship theory of knowledge spill-over, which postulates that knowledge production and spillover creates entrepreneurship opportunities, and that ICTs play important role in the dissemination of entrepreneurial knowledge. Moreover, ICT could also promote entrepreneurship by enabling better work organization and information communication even in regions, such as Africa, where there is limited possibility for knowledge spillover.