Micro-entrepreneurs towards the twin sustainable and digital transition. Does financial literacy play a role?

The digital and sustainable transitions represent two strategic drivers of growth and innovation for micro-, small-, and medium-sized enterprises. This is especially relevant for micro-firms, which significantly lag behind larger firms in these areas. Financial literacy can play a key role in guiding small entrepreneurs to make sound financial choices and make the so-called twin transition successful. We exploit a survey conducted by the Bank of Italy in 2021 – involving about 2,000 non-financial firms with less than 10 employees – to investigate whether financial literacy acts as a driver for the twin transition. Through instrumental variable estimation, we find evidence of a causal link between financial literacy and both digitalisation and engagement in sustainable activities.