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Informal Micro, Small, and Medium-Sized Enterprises and Digitalization: Evidence from Surveys in Indonesia

Author

Listed:
  • Shinozaki, Shigehiro

    (Asian Development Bank Institute)

Abstract
Most micro, small, and medium-sized enterprises (MSMEs) operate informally. While informal sectors are thought to contribute less to national economic development, MSMEs are a driving force behind national economic growth. Thus, formalizing informal MSMEs is critical to boosting national productivity, creating quality jobs, and promoting inclusive growth. We examine the coronavirus disease (COVID-19) impact on informal MSMEs in Indonesia by using a linear probability model regression and descriptive analysis based on evidence obtained through year-long surveys from March 2020 to May 2021. We also assess the extent of the digital transformation and challenges brought on by the pandemic and derive policy implications. The estimates found two streams of business clusters among informal MSMEs—contracting firm groups that suffered through the pandemic and those that benefited. The COVID-19 crisis and mobility restrictions led many informal MSMEs to accelerate digitalization. But digitally operated firms could not always operate successfully during the pandemic, splitting businesses into those profitable or less profitable.

Suggested Citation

  • Shinozaki, Shigehiro, 2022. "Informal Micro, Small, and Medium-Sized Enterprises and Digitalization: Evidence from Surveys in Indonesia," ADBI Working Papers 1310, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:1310
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    References listed on IDEAS

    as
    1. Martha Alter Chen, 2007. "Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment," Working Papers 46, United Nations, Department of Economics and Social Affairs.
    2. Horrace, William C. & Oaxaca, Ronald L., 2006. "Results on the bias and inconsistency of ordinary least squares for the linear probability model," Economics Letters, Elsevier, vol. 90(3), pages 321-327, March.
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    5. Shinozaki, Shigehiro & Rao, Lakshman N., 2021. "COVID-19 Impact on Micro, Small, and Medium-Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines," ADBI Working Papers 1216, Asian Development Bank Institute.
    6. Amemiya, Takeshi, 1977. "Some Theorems in the Linear Probability Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 645-650, October.
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    8. World Bank, 2020. "Response to COVID-19," World Bank Publications - Reports 33738, The World Bank Group.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Shigehiro Shinozaki, 2023. "Do Digitalization and Digital Finance Help Small Firms Survive Global Economic Uncertainty in Central and West Asia? Evidence from Rapid Surveys," Sustainability, MDPI, vol. 15(13), pages 1-29, July.

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    More about this item

    Keywords

    COVID-19; informality; shadow economy; MSMEs; digitalization; SME development; access to finance; SME policy; Indonesia;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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