Digital Entrepreneurship and Regional Development: The Role of Artificial Intelligence Adoption among Rural and Semi-Urban MSMEs in Karnataka, India
Year: 2026
Type: article
Study design: Observational Study
Abstract: : This study investigates the role of Artificial Intelligence (AI) adoption in drivingdigital entrepreneurship and regional development among Micro, Small, and MediumEnterprises (MSMEs) in rural and semi-urban Karnataka, India. Despite rapid advancementsin AI technologies, the extent to which AI adoption catalyses entrepreneurial innovation,business growth, and sustainable regional development in peripheral geographies remainsunderexplored. Employing a quantitative research design, data were collected from 350MSME owners through a structured questionnaire using stratified random sampling across sixdistricts of Karnataka. A five-point Likert scale was used to measure constructs. Reliabilityand validity were assessed through Cronbach's alpha, Exploratory Factor Analysis (EFA), andConfirmatory Factor Analysis (CFA). Structural Equation Modelling (SEM) was applied usingAMOS 26.0 to test the proposed hypotheses and mediation effects. The results reveal that AIadoption significantly and positively influences both entrepreneurial innovation (β = 0.61, p <0.001) and business growth (β = 0.54, p < 0.001). Entrepreneurial innovation and businessgrowth partially mediate the relationship between AI adoption and regional development. Theoverall model explains 64.3% of the variance in regional development outcomes, underscoringAI adoption as a pivotal lever for inclusive and sustainable regional transformation. Thefindings advocate for targeted AI upskilling programmes, digital infrastructure investment, andMSME-centric AI policy frameworks in Karnataka and comparable emerging economycontexts. The study aligns with SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry,Innovation and Infrastructure), and SDG 10 (Reduced Inequalities). This paper introduces theAI-Regional Entrepreneurial Development (AI-RED) framework, providing the first empiricalSEM-based test of mediated pathways from AI adoption to regional development among ruraland semi-urban MSMEs in Karnataka. It advances Innovation Diffusion Theory and theResource-Based View within emerging economy entrepreneurship scholarship.Keywords: Digital entrepreneurship; AI adoption; MSME; Regional development; Karnataka;Innovation; Business growth; Sustainable development
Authors: Harishkumar SP, Madhusudhan's HS, Nagaraju LG
Institution: REVA University
Language: English
Subfield: Business and International Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7203880264