The Unassuming Economist

From a paper by M. Shabri Abd. Majid, F. Faisal, Heru Fahlevi, Maulidar Agustina, A. Azhari, Y. Yahya & Z. Zulkifli:

“Micro, small, and medium enterprises (MSMEs) are widely recognized as key drivers of entrepreneurship and inclusive growth; however, their effectiveness in reducing poverty depends more on the quality of productivity improvements than on the expansion of firm numbers alone. This study investigates how entrepreneurial productivity, measured by total factor productivity (TFP) and its components—efficiency change and technological progress—affects poverty both directly and through the sequential roles of human development (HDI) and economic growth. Using 2,070 panel observations from six sectors across 23 districts in Aceh, Indonesia (2010–2024), productivity is estimated through the Malmquist Index within a Data Envelopment Analysis (DEA) framework. Direct, single, and sequential mediation effects are examined using the Baron and Kenny approach and estimated via Estimated Generalized Least Squares (EGLS) with Seemingly Unrelated Regression (SUR) adjustments. The findings reveal heterogeneous effects across productivity components, highlighting asymmetric transmission mechanisms in which different dimensions of productivity influence poverty through distinct pathways. Increases in TFP and technological progress are associated with reductions in poverty (β ≈ 0.135–0.311), whereas efficiency change is linked to higher poverty levels (β ≈ − 0.117 to − 0.226), reflecting short-term adjustment costs from structural changes. Economic growth emerges as the primary transmission channel, while HDI does not exert a direct effect but significantly strengthens the impact of productivity when it precedes growth in the causal sequence. The strongest poverty reduction occurs when productivity first improves human development and subsequently stimulates economic expansion. Technological progress exhibits mixed effects depending on the mediation pathway, indicating uneven distributional outcomes. Overall, the results suggest that productivity gains do not automatically lead to inclusive welfare improvements. Policy efforts should therefore prioritize innovation-driven and stable productivity growth while mitigating the adverse social effects of abrupt efficiency adjustments. This study contributes by demonstrating that different dimensions of entrepreneurial productivity generate distinct development outcomes and by proposing a sequential mediation framework that explains why some productivity gains alleviate poverty while others intensify it.”