The Impact of Digitalization on Informal Roadside Businesses in Indonesia and its Contribution to GDP

Abstract

Indonesia’s informal roadside businesses, while prevalent, remain unrecorded, representing a hidden pillar of economic potential. This study investigates how digitalizing these businesses could significantly boost Indonesia's Gross Domestic Product (GDP). The primary research question explores how digitalization can capture unrecorded transactions and integrate them into the formal economy, thereby enhancing economic measurement and growth. Employing a mixed-methods approach, the research combines quantitative analysis of transaction volumes and digital payment adoption rates with qualitative insights from roadside business owners, financial experts, and policymakers.

According to the World Economic Forum, “digitalizing informal roadside businesses could increase Indonesia’s GDP by 21-22%”. This boost is primarily driven by capturing previously unrecorded economic activities by the informal roadside businesses. However, significant challenges remain, including poor digital literacy and access to financial services. This study underscores the urgent need for targeted strategies to enhance digital infrastructure, provide digital literacy training, and incentivize digital payment adoption. By finding a solution to these challenges, Indonesia can achieve a more inclusive and boosted economy, which will lead to economic growth and the empowerment of small businesses through better financial inclusion. 

The theoretical framework supporting this research is framed around digitalization, financial inclusion, and the informal economy. The analysis uses descriptive data to contrast revenues before and after digitalization. The finding from the difference in revenue instills a sense of desire for policy recommenders to move forward with the initiative of digitizing informal businesses because it also benefits them.