The Impact of ICT on Regional Economy in Indonesia Through MSEs as Mediators: Application of Causal Mediation Analysis in Instrumental-variable Regressions

Introduction/Main Objectives: The development of information and communication technology (ICT) and small and micro enterprises (SMEs) can encourage regional economic growth. Background Problems: Studies on the impact of ICT on the rural economy at the village level are very limited. Furthermore, the Indonesian study neglects to tackle the endogeneity issue associated with this variable and the indirect effects of ICT on the regional economy. Novelty: Using SMEs as a mediator, this study examines the impact of ICT (internet signal strength) on the village's local economy (nighttime light), both directly and indirectly. ICT is considered to be endogenous. Research Methods: This study employs causal mediation analysis in instrumental-variable (IV) regressions at the village level in 2018 and 2021, using lightning strike intensity as IV. Finding/Results: Internet signal strength can increase the number of SMEs, and this increase can positively and significantly impact the local economy. In addition, the direct impact of internet signal strength on the local economy is significantly negative. However, the total impact of internet signal strength is significantly positive.