Information technology adoption and small and medium enterprise performance: Does information technology adoption reduce rural penalty in emerging and developing countries?

Abstract

This study examines information technology (IT) adoption effects on the performance of small and medium enterprise (SMEs) in emerging markets and developing economies and how the locational challenges faced by rural SMEs could be reduced by IT adoption. Using 8466 firm-level data from the 2022/2023 World Bank enterprise survey from 13 countries, across Europe and Central Asia, Latin America, Southeast Asia, South Asia, and Sub-Saharan Africa, we used the entropy balancing technique and tested the effects of IT adoption on the relationship between remoteness and firm performance. Our results show that IT adoption positively affects firm performance and moderates the remoteness-performance relationship, indicating that IT adoption reduces the rural penalty faced by remote firms. These findings imply that modern firms with sophisticated production methods outperform traditional ones; therefore, adopting information technology would benefit traditional rural firms.