Optimizing the Potential of Small and Medium Enterprises (Smes) as a Strategy for Exiting the Middle Income Trap: A Case Study in Indonesia

. This study aims to analyze the potential of small and medium enterprises (SMEs) as a strategy to escape of the middle income trap in Indonesia. Middle income trap is represented by the per capita income, while small and medium enterprises are represented by the number of small and medium business units, the amount of investment, and the number of workers in the small and medium business sector. The variable used as the dependent variable is the per capita income, while the independent variable is the number of small and medium enterprises units, total investment, government expenditure (share % of GDP), total population, and number of workers in the small and medium business sector. The secondary data used in this study has a time span between 2008 and 2018. The method of analysis used to investigate the impact of independent variables on the dependent variable is the ordinary least square method (OLS). The results found in this study are there is a significant positive effect of the investment variable and government expenditure on the per capita income variable. Meanwhile, the variable number of small and medium enterprises has a significant positive impact on the per capita income variable of the population.