From Firms to Ecosystems: Institutional Complementarities and the Uneven Digital Development of Small-Firm Economies in Post-Soviet Transition States

Abstract

Why do national and regional economies composed largely of small firms diverge so sharply in their capacity to digitalize, even when individual firms face broadly similar technologies and price signals? This paper shifts the level of analysis from the single enterprise to the institutional ecosystem in which small and medium-sized enterprises (SMEs) are embedded. It argues that the digital development of a small-firm economy is not the arithmetic sum of individual adoption decisions but an emergent property of institutional complementarities -the mutually reinforcing fit among finance, skills formation, digital public infrastructure, and regulatory quality. Drawing on the varieties-of-capitalism tradition, institutional economics, and the resource-dependence view of the firm, the paper develops an ecosystem-complementarity framework and applies it comparatively to post-Soviet transition economies (Ukraine, Georgia, Armenia, Moldova, Kazakhstan, and the Baltic states). It contends that where complementary institutions co-evolve, individual firm-level resource constraints are relaxed at the population level; where they do not, public investment in any single institution yields disappointing returns because the binding constraint lies elsewhere. The paper contributes to social and economic development studies by reframing the "digital divide" between transition economies as an institutional-complementarity gap, and it closes with implications for sequencing development policy and an agenda for comparative empirical research.