Digital Financial Services and Entrepreneurial Expansion in Resource-Constrained Markets

Abstract

Financial services delivered digitally are increasingly being seen as tools to alleviate financial exclusion and promote entrepreneurship in less-endowed environments. Nonetheless, empirical support is still lacking regarding whether financial access and connectivity lead to entrepreneurship growth in developing countries. This study examines the effect of digital financial services on entrepreneurial expansion in resource-constrained markets, focusing on account ownership, financial institution account ownership, and internet usage. A quantitative panel-data approach was applied using secondary data from World Bank sources covering 52 low-income and lower-middle-income countries between 2011 and 2024. The final sample comprised 196 country-year observations. Entrepreneurial expansion was measured using log new business density. A country fixed-effects regression model with robust HC3 standard errors was estimated, controlling for GDP per capita and unemployment. The results indicate that account ownership had a positive and statistically significant effect on entrepreneurial expansion (β = 0.4960, p = 0.0016). Internet usage also showed a positive and significant effect (β = 0.0040, p = 0.0011). Financial institution account ownership, GDP per capita, and unemployment did not significantly explain entrepreneurial expansion after accounting for country-specific effects. These results indicate that the development of entrepreneurship in marketplaces with limited resources depends more on widespread ownership and digital connectivity rather than ownership based on institutions. It means that a combination of policies focusing on financial inclusion and technological infrastructure will have positive implications for formal entrepreneurship in developing economies.