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

Shigehiro Shinozaki
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Shigehiro Shinozaki: Asian Development Bank Institute

No 1310, ADBI Working Papers from 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.

Keywords: COVID-19; informality; shadow economy; MSMEs; digitalization; SME development; access to finance; SME policy; Indonesia (search for similar items in EconPapers)
JEL-codes: D22 G20 L20 L50 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ent, nep-iue, nep-sbm and nep-sea
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