The Effect of Micro and Small Business (Mses) Performance on Inclusive Growth in Indonesia: Panel Dynamic Simultaneous Equation Model

The purpose of this research is to analyze the role of MSEs in driving economic growth to realize inclusive growth, therefore the thinking flow in this study divides the analysis stage into 3 blocks of equation: the MSEs performance equation block, the economic growth block and the inclusive growth equation block. In this study used a panel dynamic simultaneous equation model for 33 provinces in Indonesia from 2010 to 2019 using the Generalized Method of Moments Arellano-Bond (GMM A-B) estimation method. The MSEs Performance Block analyzed using the Stucture-ConductPerformance (SCP) approach shows that there is a simultaneousity relationship between the MSEs market structure, corporate behavior and MSEs performance as well as a significant influence on variable inflation, wages, government regulation of MSEs and infrastructure indices on MSEs performance as measured by internal efficiency in Indonesia. The Economic Growth Equation Bloc refers to J.Shumpeter's growth theory which places enterprenership and innovation as the main factors influencing economic growth and the regression results show that the performance of MSEs has a significant effect on economic growth. The final stage of this study is analyzing the inclusive growth equation bloc which shows that economic growth supported by the performance of MSEs is able to increase labor absorption as well as reduce income distribution inequation but has not been able to lower the poverty level in other words that inclusive growth goals to lower poverty levels have not materialized in Indonesia.