Digital Capabilities, Innovation Ecosystems and SME Dynamism: A Cross-Country Decomposition between South Africa and OECD Economies

Abstract

This study examines how digital capabilities and innovation ecosystems shape cross-country differences in SME dynamism between South Africa and OECD economies. Drawing on a technology and strategic management perspective, the study integrates digital capability, human capital, and institutional conditions within a decomposition framework. Using panel data and the Oaxaca–Blinder technique, differences in new business density are decomposed into components attributable to observable technological and ecosystem characteristics and structural factors. The findings show that while digital infrastructure, innovation capacity, and human capital contribute to entrepreneurial activity, they explain only a limited share of the observed gap. Instead, the largest portion is driven by structural differences in how digital and institutional capabilities are translated into entrepreneurial outcomes. The threefold decomposition further reveals that interaction effects between digital capabilities and institutional environments are the primary drivers of the gap. These results highlight the importance of technology absorption capacity and ecosystem readiness in shaping entrepreneurial performance. The study contributes to the technology and innovation literature by demonstrating that digital transformation alone is insufficient without complementary institutional and ecosystem conditions. Policy implications emphasize the need for coordinated strategies that align digital infrastructure, innovation systems, and governance frameworks to enhance SME dynamism. 

KEYWORDS

Digital capabilities; Entrepreneurial ecosystems; Innovation systems; Oaxaca–Blinder decomposition; SME dynamism