Temporal Effects of Human Capital and Digital Strategy on MSME Performance in Indonesia: A GMM System Dynamic Panel Approach

Abstract

This research contributes to the limited empirical literature examining the simultaneous impact of digital marketing intensity and human resource-related capabilities on MSME performance, particularly in turbulent and highly competitive environments. Despite the pressing need for digital adoption across the micro and small business sector, empirical inquiries linking marketing digitalization, human capital quality, and output sustainability over extended timeframes remain sparse. To bridge this literature gap, the study employs a dynamic-panel framework using the system's Generalized Method of Moments estimator, thereby accommodating potential endogeneity between regressors and the presence of autocorrelation in the dependent variable. Drawing on a balanced dataset of 120 MSME-year observations, the analysis reveals that the Digital Marketing Intensity variable (DMI), an aggregated Human Capital Index (HCI), and the intensity of human-resource training exert a statistically positive and economically meaningful influence on performance, with coefficients of 0.241, 0.193, and 0.158, respectively. In contrast, an intensified Market Competition variable correlates with performance deterioration (–0.142), suggesting that intensified rivalry exerts a compressive effect on relative output. Digital literacy emerges as a positive moderating factor, amplifying the DMI-performance coupling with a marginal effect of r = 0.086, thereby underscoring the complementary role of digital know-how in reinforcing strategic digital investments. Finally, the statistically significant coefficient on the performance lag variable substantiates the notion of path dependence in the performance trajectories of MSMEs over time. Theoretical validation for these results stems from their consistency with dynamic capabilities, human capital, and market structure frameworks, specifically as they pertain to micro, small, and medium-sized enterprises. From a policy perspective, the results signal a pressing need for initiatives that advance technological assimilation, elevate digital competency levels, and strengthen human resource infrastructures. Moreover, regulatory frameworks should evolve towards adaptable market protections that provide micro, small, and medium-sized enterprises with the necessary freedom to flourish and succeed in the digital economy.

Keywords: MSMEs, digital marketing, human capital, digital literacy, dynamic GMM.