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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Keita Oikawa: Economic Research Institute for ASEAN and East Asia
Fusanori Iwasaki: Economic Research Institute for ASEAN and East Asia
Shigehiro Shinozaki: Asian Development Bank

No 725, ADB Economics Working Paper Series from Asian Development Bank

Abstract: The coronavirus disease (COVID-19) pandemic disrupted businesses, economies, and societies worldwide. This study employs unique data from Indonesia to investigate whether and how digitalization of micro, small, and medium-sized enterprises (MSMEs) helped them weather the adverse shocks from the pandemic and resulting lockdowns. The main empirical result is that, in the pandemic’s early phases, digitalized MSMEs disproportionately encountered negative effects on their business outcomes. The seemingly harmful elements of digitalization disappeared during later stages. Moreover, COVID-19 restrictions initially had a “positive” impact on the business environment. This is counterintuitive. But when considering the panic buying at the onset of restrictions and large share held by the essential sector in our dataset, particularly the wholesale and retail sectors, the positive impact from the restrictions is not unreasonable. These findings suggest that the digital transformation had not yet been stably established among MSMEs by the start of the pandemic. Our findings provide critical implications for industrial and competition policies related to MSMEs during the COVID-19 recovery process.

Keywords: digitalization; digital financial services; access to finance; SME development; SME policy; Indonesia (search for similar items in EconPapers)
JEL-codes: D22 G20 L20 L50 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2024-05-02
New Economics Papers: this item is included in nep-ent, nep-sbm and nep-sea
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