Institutional Quality, Entrepreneurship, and Economic Outcomes in Low- and Middle-Income Economies

Abstract

Purpose

This study examines the effect of digital financial inclusion on the growth of micro-enterprises in low- and middle-income economies, with particular focus on gender disparities and the mediating role of institutional trust.

Methodology

The study uses primary panel survey data from 1,240 micro-entrepreneurs collected across several developing economies between 2018 and 2023. A panel probit model is applied to analyse the determinants of the adoption of digital financial services. At the same time, a dynamic system Generalised Method of Moments (GMM) estimator assesses the impact of digital financial inclusion on enterprise growth, accounting for endogeneity and unobserved heterogeneity.

Findings

The findings indicate that digital financial inclusion significantly enhances micro-enterprise growth by improving liquidity management, expanding market access, and increasing operational efficiency. Institutional trust partially mediates this relationship, reinforcing both the adoption and effectiveness of digital financial services. The interaction between digital financial inclusion and gender is negative, indicating that women entrepreneurs derive comparatively lower growth benefits.

Conclusion

The study concludes that digital financial inclusion can support micro-enterprise development, but its growth-enhancing effects depend critically on institutional trust and gender dynamics. Addressing trust deficits and gender-specific barriers is essential to ensure that digital financial ecosystems promote inclusive and equitable entrepreneurial growth in developing economies.