Linking digital economy and inclusive development: evidence from Indonesia

Abstract

The rise of the digital economy can be seen as an opportunity to achieve development goals in a more inclusive manner. Yet, how the digital economy can contribute to inclusive development is still not fully understood, particularly in the context of developing countries. Hence, this paper aims to provide empirical evidence on the dynamics and mechanisms of digital economy initiatives in achieving inclusive development, based on three case studies in Indonesia. Our findings suggest that each initiative has created a varying degree of inclusiveness that might evolve over time, depending on the practical problems, proposed solutions and specific domains. However, there are several technical and non-technical challenges that might hinder the potential of each initiative to create a greater impact on inclusiveness. We thus suggest that there should be a balance between narrowing the digital divide and preparing the next wave of technological innovation, so that the digital economy will promote inclusiveness and not widen the inequality gap in Indonesia.

Full text

1
The 2nd International Conference
on Indonesian Development (ICID) 2019
https://icid.ppibelanda.org
LINKING DIGITAL ECONOMY AND INCLUSIVE DEVELOPMENT:
EVIDENCE FROM INDONESIA
WIRAWAN AGAHARI1, DAY A SUDRAJAT2
1Delft University of Technology, Jaffalaan 5, Delft, the Netherlands
2International Institute of Social Studies, Kortenaerkade 12, The Hague, the Netherlands
w.agahari@tudelft.nl
Abstract
The rise of the digital economy can be seen as an opportunity to achieve development goals in a more inclusive manner. Yet, how the
digital economy can contribute to inclusive development is still not fully understood, particularly in the context of developing countries.
Hence, this paper aims to provide empirical evidence on the dynamics and mechanisms of digital economy initiatives in achieving
inclusive development, based on three case studies in Indonesia. Our findings suggest that each initiative has created a varying degree
of inclusiveness that might evolve over time, depending on the practical problems, proposed solutions and specific domains. However,
there are several technical and non-technical challenges that might hinder the potential of each initiative to create a greater impact on
inclusiveness. We thus suggest that there should be a balance between narrowing the digital divide and preparing the next wave of
technological innovation, so that the digital economy will promote inclusiveness and not widen the inequality gap in Indonesia.
Keywords: digital economy, inclusive development, Indonesia, case studies
1. Introduction
It is believed that achieving inclusive development has become a key agenda for every country all around the world. This means that
the focus is not solely on resolving mainstream problems in development discourse such as inequality, poverty and economic growth.
Instead, inclusive development puts additional emphasis on “social and environmental aspects of development” [1]. The key is to
ensure that well-being is distributed fairly in society since this indicates that development in a particular country is achieved in an
inclusive manner [2].
Meanwhile, recent technological innovation has led to the emergence of the digital economy, defined as “that part of economic output
derived solely or primarily from digital technologies with a business model based on digital goods or services” [3]. Such innovations
have a disruptive impact and successfully transforming the society, which is evident in the case of Indonesia that has a highest internet
penetration rate in Asia and the dominant usage of smartphone as well as social media. But more than that, the digital economy can
also be seen as a means to ensure that the development goals can be achieved in an inclusive manner [4], [5]. Yet, the relation between
the digital economy and inclusive development is not fully understood, especially in the context of developing countries [6].
This paper aims to bridge this knowledge gap by providing empirical evidence on how the digital economy in developing countries
can contribute to achieving inclusive development. To do so, we apply the inclusive development framework proposed by Farhan et
al. [7] as an analytical lens in understanding three digital economy initiatives from the financial, fishery and e-commerce sectors in
Indonesia. Thus, this paper serves as a contribution to the emerging research domain on digital economy and development by
elaborating on the value creation mechanisms of each initiative as well as its drivers and barriers in achieving inclusive development.
2. Methodology
We conducted comparative case studies by examining two digital start-ups (Amartha & eFishery) and one initiative from a state-
owned enterprise (Rumah Kreatif BUMN). We use a combination of desk research and interviews with representatives of each
enterprise to gather relevant information about the solutions that they offer to achieve development goals as well as their impact on
inclusiveness. We structure our findings based on the inclusive development framework that is derived from the literature [7]. The
framework consists of three dimensions: economic (reducing inequality of wealth distribution), social (ensuring involvement and
participation of people from all groups in the development process) and ecological (tackle impacts on the environment resulting from
development processes).
An overview of each case studies are presented in Table 1. We are aware that there are other well-known start-ups and digital
economy initiatives with arguably bigger impacts. However, we argue that to better understand the dynamics of the digital economy
in achieving inclusive development, a comprehensive view of the initiatives from various sectors and scale is required. Understanding
the context of different initiatives is important since different contexts might yield to a varying degree of inclusiveness.
Table 1. Overview of case studies
Amartha
eFishery
Rumah Kreatif BUMN
Type
Start-up
Start-up
State-owned enterprise
Domain
Financial
Fisheries
E-commerce
The problem
Financially excluded
population in rural areas
The inefficiency and high cost
of fish feeding
Products sold by Small Medium
Enterprises (SMEs) are not market ready
The proposed
solution
Peer-to-
peer lending for
female microentrepreneurs
Internet-of-Things (IoT)
solution for fish and shrimp
farming
Capacity building
and mentoring for
SMEs

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3. Results and Discussion
In general, our findings support the argument that the digital economy initiatives can contribute to achieving inclusive development.
However, there is a variance in terms of the degree of inclusiveness that is achieved by each initiative. This is highly dependent on the
context and focus of each initiative. For instance, the nature of eFishery, which focuses on improving the efficiency of fish farmers in
providing fish food, has led to a significant contribution in achieving environmental inclusion, in a way in which no fish food is wasted
and no water is polluted. Meanwhile, a comprehensive capacity building program provided by Rumah Kreatif BUMN offers the
opportunity for Small Medium Enterprises (SMEs) to empower themselves with digital knowledge as well as participate and compete
in the digital era. Additionally, Amartha creates a unique value proposition that we describe as “multi-sided inclusiveness”: they
empower women to become an entrepreneur and improve their quality of life while enabling every individual to become an investor
and create social impact.
It should be taken into account that the impact and degree of inclusiveness might evolve over time along with the change of scope
and focus for each initiative. This is evident from the case of Amartha, where they initially did not focus on achieving ecological
inclusion. However, they started to learn that there is a relation between environmental issues and poverty. Hence, they developed an
intervention strategy to reduce plastic consumption as a means to increase environmental awareness.
We also identified several barriers that might hinder the potential of each initiative to achieve inclusive development. In the case of
Rumah Kreatif BUMN, stimulating a digital mindset for SMEs has proved to be challenging, particularly due to lack of experience and
knowledge in using digital technologies. A similar issue is also faced by eFishery, in a sense that they are facing difficulties to push
their technological solutions into the traditional market due to lack of experience in using technology. Meanwhile, the challenges faced
by Amartha are more about financial literacy, since there are some cases of double credit where borrowers try to borrow money from
multiple financial institutions.
Table 2. Findings: linking the digital economy with inclusive development
Development
dimension
Sub-dimension Amartha eFishery
Rumah Kreatif
BUMN
Economic
1. Increasing household income
Yes
Yes
Yes
2. Access to finance
Yes
Yes
Yes
Social
1. Enhancing access to education
Yes
Yes
Yes
2. Ensuring equity principles for participation
Yes
Unknown
Yes
3. Opening up opportunities for employment
Yes
Unknown
Yes
4. Equitably sharing rights, responsibilities
and risks
Yes Unknown
Yes
Ecological
1. Environmentally concern
Yes
Yes
Unknown
4. Conclusion and Recommendation
In this paper, we made an attempt to contribute to the growing research area of the digital economy and development by providing
empirical evidence on the contribution of digital economy initiatives towards inclusive development in Indonesia. We pointed out that
there is a varying degree of inclusiveness that can be achieved by each initiative depending on its context and area of focus. Also, the
degree of inclusiveness is not static and can change over time. Finally, several technological and non-technological challenges might
possibly hinder the potential of the digital economy in achieving inclusive development.
To conclude, the digital divide has been an ongoing and problematic issue in developing countries for some time, including in
Indonesia. Hence, to get the best out of the digital economy, the Indonesian Government should put more effort into narrowing the
digital divide in terms of access, skills and knowledge. This is necessary since the digital economy can promote both inequalities and
inclusiveness at the same time. To some extent, the inclusiveness benefits of digital technology only can be accessed by particular
communities. Furthermore, the next wave of emerging technologies is on its way, such as the Internet of Things (IoT), Artificial
Intelligence (AI) and 3D printing. Hence, there should also be a balance between narrowing the digital divide and anticipate the impact
of such technologies.
References
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