Private Sector Development and Policy Actions in Timor-Leste: Lessons from a Business Mapping Survey

This paper empirically investigates what drives the growth of private businesses in Timor-Leste and the policy actions needed to facilitate growth amid global uncertainty, especially for micro, small, and medium-sized enterprises (MSMEs). It uses the linear probability model (LPM) to identify the MSME growth structure and the Oaxaca decomposition to reveal detailed growth factors by firm type in determining which policy areas need to be strengthened. Estimation results show that four types of MSMEs—those formalized, digitalized, internationalized, and women-led —exhibit different business characteristics and performance results compared with control groups. Accordingly, policy support areas differ by firm type, with a focused approach critical in designing and delivering policy assistance to MSMEs in Timor-Leste. The study suggests policy implications to consider when designing an evidence-based MSME policy framework that can maximize the benefits from the country’s recent accession to Association of Southeast Asian Nations membership.