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Published in: Eurasian Business Review 4/2021

25-09-2020 | Regular Article

The effect of a credit policy change on microenterprise upward transition and growth: evidence from Indonesia

Author: Ilmiawan Auwalin

Published in: Eurasian Business Review | Issue 4/2021

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Abstract

This paper attempts to establish a causal relationship between a government micro and small enterprises (MSEs) credit promotion policy and MSEs’ upward transitions and growth. Indonesian firm level data in conjunction with the cancellation of a mandatory MSE credit policy in 2001 by the Indonesian government are employed in the analysis. Firstly, estimations of the year-on-year micro to small size category transitions indicate the negative effect of the policy change on the upward transition of micro firms. Secondly, causal effect analysis using difference-in-differences (DiD) estimation, by employing the policy change as an exogenous shock on the MSE credit availability and setting medium and large enterprises (MLEs) as the counterfactual group, suggests that the policy cancellation reduces the probability of a micro firm to become a small firm by 1.3% relative to the MLEs’ probability of transitioning between size categories. The negative effect on turnover growth is also identified.

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Appendix
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Footnotes
1
Microenterprise credit is included in this category, as it covers any amount of loan up to the maximum of IDR 200 million. The term ‘micro enterprises’ as a separate category from small enterprises was not used until it was included in Bank Indonesia regulation no 7/39/2005. The microenterprise as a separate category was further formally acknowledged in the 2008 Micro, Small & Medium Enterprise Act No. 20, which was the result of the amendment of the 1995 Small Enterprise Act No. 9.
 
2
In June 2019, in average, USD 1 approximately equals to IDR 14,000.
 
3
The value of physical assets is another term used to identify firm size. Unfortunately, in the dataset, the value of the assets is only recorded in the survey years of 2004 and 2005.
 
4
The same approach applies when turnover is used to identify the transitions.
 
5
The Indonesian National Economic Census is implemented every ten years in the year ending with a 6.
 
6
The logit fixed effects model does not allow the computation of the marginal effects, as these effects depend on the value of the fixed effects, which are not estimated.
 
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Metadata
Title
The effect of a credit policy change on microenterprise upward transition and growth: evidence from Indonesia
Author
Ilmiawan Auwalin
Publication date
25-09-2020
Publisher
Springer International Publishing
Published in
Eurasian Business Review / Issue 4/2021
Print ISSN: 1309-4297
Electronic ISSN: 2147-4281
DOI
https://doi.org/10.1007/s40821-020-00170-w

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