Unintended Consequences of Business Digitalization Among MSMEs During the COVID-19 Pandemic: The Case of Indonesia

Keita Oikawa, Fusanori Iwasaki (), Yasuyuki Sawada () and Shigehiro Shinozaki ()
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Fusanori Iwasaki: Economic Research Institute for ASEAN and East Asia Jakarta, Indonesia
Yasuyuki Sawada: University of Tokyo Tokyo, Japan
Shigehiro Shinozaki: Asian Development Bank Manila, Philippines

Asian Economic Papers, 2025, vol. 24, issue 1, 98-122

Abstract: In this study, utilizing sui generis Indonesian data, we investigate whether and how the digitalization of micro-, small-, and medium-sized enterprises (MSMEs) helped them weather the adverse shocks arising from the COVID-19 pandemic and the resulting lockdown. Surprisingly, digitalized MSMEs initially faced negative impacts, but these drawbacks diminished at the later stages. This counterintuitive result underscores the evolving nature of digital transformation among MSMEs, suggesting that digital transformation has yet to be established stably among them. Our findings carry crucial implications for formulating industrial and competition policies related to MSMEs in the COVID-19 recovery process.

Date: 2025
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