The growth of MSMEs does not guarantee economic inclusion: evidence from districts and cities in North Kalimantan

Abstract

MSME promotion is widely expected to improve employment and reduce poverty, yet administrative expansion may not represent productive transformation. This study examines whether growth in recorded MSME establishments was accompanied by lower unemployment and poverty across the districts and city of North Kalimantan. A balanced regional panel was reconstructed from secondary administrative data and audited for reproducibility. Descriptive trends, locality fixed effects, two-way fixed effects, first-difference models, logarithmic specifications, and sensitivity checks were applied. The findings show a pronounced divergence between the expansion of registered enterprises and changes in welfare outcomes. The association with unemployment is small and unstable, while the poverty relationship does not provide robust evidence of improvement. The results indicate that establishment counts are insufficient as a stand-alone measure of inclusive development. The novelty of the study lies in distinguishing entrepreneurial participation from entrepreneurial transformation through a conversion-chain perspective linking registration, active operation, productivity, paid employment, and household income. Policy evaluation should therefore prioritize active status, survival, job quality, earnings, productivity, and local value-chain participation