Why digital regulation is now an economic growth question in Asia
One of the central questions running through technology policy today is deceptively simple: what kind of policy environment allows technology to deliver its full economic potential?
At a closed-door roundtable in New Delhi recently, I heard that question in a very practical way. Policymakers, investors, and founders were not debating whether digital regulation mattered. They were engaging with the harder question of how regulation could protect consumers and build trust, while still allowing startups to innovate, attract investment, and scale.
That, to me, is the next phase of technology policy in Asia. The issue is no longer whether governments should regulate the digital economy. They clearly must. The more important question is how regulation can be designed in a way that is evidence-led, proportionate, and alive to its wider economic effects.
This is where economics has an important role to play. It helps policymakers understand how regulation changes incentives, reallocates resources, and shapes the conditions for investment, innovation, and growth.
Individual rules shape the wider ecosystem
Digital regulation is no longer a peripheral issue; it has become a defining feature of the environment in which startups operate. The number of digital policy changes across Asia has soared from 35 in 2018 to 642 in 2025.
That increase is not inherently a problem. Many digital rules pursue legitimate and important public policy goals. However, our research shows that startups and investors experience these rules differently. For them, regulations do not arrive as separate policy instruments. They combine to shape the wider operating environment in which decisions are made: whether to launch a new product, enter a new market, hire technical talent, or commit investment capital.
The risk, however, is what we are calling digital dysregulation. In our first article in this series, Dysregulation and the economics of AI policy, we explained how problems arise when individually sensible interventions begin to pull in different directions, gradually reducing the coherence of the wider policy environment. That can make it more difficult for firms to invest, innovate, and scale new technologies.
Our core argument is therefore simple: the economic impact of digital regulation depends not only on its specific purpose, but also — and often more importantly — on how it is designed, implemented, and experienced by the firms it affects.
Seen through an economic lens, digital regulation affects startups through three main channels: the cost of compliance, the uncertainty facing investors and founders, and the extent to which regulation builds market trust.
In our survey of 1,050 startups across India, Malaysia, and South Korea, almost nine in 10 said digital regulations made day-to-day operations more difficult. Meanwhile, two-thirds of venture capital investors in our survey said that digital regulation made it harder to assess likely returns — a central part of investment decision-making.
At the same time, while well-designed regulation can strengthen market legitimacy and increase confidence in digital services, the benefits are uneven. Only around a third of one-year-old startups in our survey said digital rules had strengthened customer trust in their products or services.
Compliance shapes how startups grow
For startups, compliance is not an abstract administrative cost. It directly affects how scarce resources are allocated. As regulatory requirements expand, startups are often forced to spend more on expertise in areas such as cybersecurity, data governance, and legal compliance. This burden is especially heavy for pre-revenue startups, with 77% reporting higher spending on compliance expertise.
The impact of this on innovation is worrying: more than half of startups reported delays in product development or longer time to market. Investment decisions are also increasingly shaped by regulation, with only 4% of VCs saying that regulation was irrelevant.
The broader economic implications are significant. Excessively restrictive or poorly coordinated regulation does not just create administrative burdens; it can shrink the startup ecosystem itself, discourage entrepreneurship, and deter investment.
Evidence helps policymakers see the trade-offs
Our research shows that the design, coherence, and predictability of regulation matter greatly. Countries with less restrictive digital rules tend to be associated with stronger startup growth and greater investor funding. We examined digital regulations across 95 countries to quantify the relationship between regulatory restrictiveness and startup ecosystem outcomes.
The results show a clear pattern: more restrictive regulatory environments are associated with weaker startup formation and lower venture capital investment. The differences are economically meaningful. Shifting from the more restrictive end of the range to the less restrictive end is associated with a 3 percentage point increase in annual growth in new firm creation and a 4 percentage point increase in annual growth in VC funding.
The economic gains from getting regulation right
The message from our research is clear: these gains translate into thousands of additional businesses and tens of millions of dollars in investment across some of Asia’s most strategically important innovation sectors.
In today’s fast-moving technology landscape, each individual policy may reflect a legitimate concern. But viewed collectively, the weight of regulation can either create an environment in which startups and investors have the confidence to build, or one in which uncertainty and compliance costs gradually work against the full potential of the digital economy in Asia. That is why getting regulation right and avoiding dysregulation matter for economic policymakers.
The roundtable discussion in India reinforced this point for me. The future of technology policy will be shaped not only by the strength of regulatory ambition, but also by the quality of the evidence behind it.
