Determinants of MSMEs Growth and its Impact on Income and Unemployment: Cases of Indonesia and Malaysia

Abstract

The growth of MSMEs is not consistent and fluctuates over time. Thus, this study aims to analyze the factors that contribute to MSMEs growth in Indonesia and Malaysia. It is also meant to investigate how MSMEs contribute to the national economy, and how the national economy influences the level of unemployment in both countries. Using quarterly data from 2010 to 2018, ordinary least squares were conducted with proper examinations on unit root and classical assumption tests to ensure unbiased estimators. The findings show that the MSMEs growth in Malaysia is adversely influenced by credit. However, MSMEs growth in Indonesia is influenced positively by credit, investment, and technology. Besides, the MSMEs growth helps to increase national income, which ultimately assists in reducing the unemployment level in Indonesia, but not in Malaysia. This study contributes to how governments in both countries can boost the MSME’s growth, thus improving the employment rate. The Indonesian government can use credit expansion to increase MSMEs growth, but the same move cannot be implemented by the Malaysian government as it will adversely impact the MSMEs growth. For future research, it is suggested to comprehend these findings with qualitative study, thus improving the model of MSMEs growth in both countries.