Network and Size

The focus of the analysis in this chapter is on the role of size and network in MSME productivity. The tests of association using the heatmaps and Chi-square techniques show that there is an association between productivity and network–albeit limited–but no association between productivity and size. To capture the causality of relations for the practical relevance and policy implications purposes, an instrumental variable (IV) technique is used by incorporating the prevailing social capital, i.e., norms (role of indigenous community), trust (role of conflicts), and network (quantity and quality of interactions). The results further confirm the significance of network in enhancing MSE productivity. Most analysis that focuses on the role of size seems to miss the important channel of influence. Had smaller MSMEs been able to get the same number and quality of network as the large ones, the productivity improvement of both could have been comparable. It is the network, not the size, that matters more. Examples of case-based evidence in Jawa and outside Jawa are presented towards the end of the chapter.