Introduction: Many small EU economies pursue a “twin transition,” yet the micro–meso channel linking digital twin capabilities to green entrepreneurship remains underexplored. This study investigates whether higher digital twin readiness strengthens the emergence of green start-ups and innovation in Baltic innovation ecosystems.
Methods: We build an industry–country–year panel for Estonia, Latvia, and Lithuania (2015–2024) and construct a Digital Twin Readiness Index (DTRI) from five ICT indicators (AI, IoT, cloud, big data, ICT specialists) using principal component analysis. Green entrepreneurial output is captured by (i) green/cleantech start-up formation, (ii) green VC/PE inflows, and (iii) environmental patents (CPC Y02). Identification relies on two-way fixed effects, a staggered difference-in-differences design exploiting 2020–2021 national digitalization strategies, and a Bartik-style IV.
Results: A higher DTRI significantly increases green entrepreneurial activity: a one-unit rise in DTRI is associated with roughly 30% higher green VC investment and about 25% more environmental patenting, while effects on start-up counts are positive but smaller. The impact is stronger in Lithuania’s energy-related activities and Estonia’s manufacturing, indicating that absorptive capacity and smart specialization conditions return to twin transition.
Conclusion: Digital twin readiness is not only a technological enabler but also an entrepreneurial enabler for green markets. Coordinating digital and green policy instruments can increase private capital and accelerate cleantech scaling.