Public and Social Goods Investment and New Business Formation in Asia: The Mediating Role of Digitalization and Innovation Linkages

Abstract

ABSTRACT The availability of public and social goods is vital for development in emerging economies, yet its effect on new business formation remains ambiguous. This study, grounded in public goods theory, investigates how increased investment in public and social goods influences new business formation, with digitalization and innovation linkages serving as mediators. Using Driscoll‐Kraay (DK) standard errors and a two‐step system GMM, the model is tested on panel data from 38 Asian countries (2011–2022). The findings support the theoretical framework, demonstrating that investment in public and social goods facilitates new business formation when integrated with digital infrastructure and innovation linkages. Further analysis by income group reveals that low‐income countries face resource constraints that impede the development of digital and innovation hubs, thereby limiting support for new business formation. The study suggests that strategic public investment in digital infrastructure and innovation hubs is crucial for fostering entrepreneurship and promoting sustainable economic growth.

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