Cognitive Skills, Entrepreneurship, and Economic Growth in Indonesia

Policy Research
Background 

This study aims to identify the skills of small business owners and their relationship to economic growth.

The abundance of small enterprises in developing countries has led to related but distinct debates on the skills of small business owners and their relationship to economic growth. The first revolves around how policymakers should view this large mass of household enterprise owners: what skills and characteristics distinguish the owners of fast growing “gazelles” from those that own subsistence enterprises with limited prospects for success? The second debate revolves around whether and how the development of household enterprises contributes to economic growth.

Each question has important implications for policymakers. First, analysis of the types of skills and characteristics important for success among entrepreneurs can inform entrepreneurship training programs or educational curriculum designed to increase the number of successful entrepreneurs. Second, better understanding the informal sector can inform broad strategies for growth and poverty reduction. Currently, little is known about the role of household enterprises in promoting growth. 

 

Objective 

The proposed project will address these questions in the context of Indonesia, a low-middle income country where almost half of total workers are self-employed and virtually all of those self-employed can be considered as stagnant enterprises. 

The specific research questions are:

  1. How much do cognitive skills, as measured by national exit test scores or direct skills exams – conditional on other personal characteristics and environmental characteristics – distinguish successful enterprises from subsistence enterprises? Do these same characteristics distinguish high-growth from stagnant enterprises?
     
  2. To what extent do high-potential entrepreneurs contribute to growth and poverty reduction? Are regional growth differences attributable to variation in the number of high-potential entrepreneurs, their profitability, or a shift from less profitable enterprises into more productive wage work?  

 

Methodology 

This study will mainly focuses on quantitative research and will utilize the Indonesian Family Life Survey (IFLS), a publicly available longitudinal household survey that was first fielded in 1993. Each wave of the IFLS contains information on the profits and size of the household’s primary farm and non-farm business, as well as detailed information on respondents’ characteristics and labor market histories, allowing us to understand which factors are important for the success of the business. This study will focus primarily on the data from 2000 to 2014, which collects a significantly richer set of information on household enterprises.

 

Advisor 
Sudarno Sumarto
Coordinator 
Daniel Suryadarma
Team Member 
Niken Kusumawardhani
Veto Tyas Indrio
Sudarno Sumarto
Daniel Suryadarma
Status 
Completed
Completion Year 
2018
Project Donor 
Partnership for Economic Policy (PEP)
Area 

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