Micro-entrepreneurship in a hostile environment: evidence from Indonesia

The contribution of micro-entrepreneurship to development has featured prominently in recent economic and policy debates. Using panel data from the Indonesia Family Life Survey over a long period (1993-2007) marked by an important economic crisis in 1997, this paper investigates the impact of financial, human and social capital on households' participation in micro-entrepreneurship, while accounting for corruption as well as institutional and infrastructure quality. Larger urban households that have greater financial and social capital, and/or whose members have an elementary or secondary education, are more likely to participate. Corruption at the local parliament and local government levels reduces the number of participants, while higher-quality formal institutions and infrastructure boost entrepreneurship. The period is marked by a rise in participation in 2000, but communities that experienced a loss in well-being due to the crisis were less likely to participate in micro-entrepreneurship.