Regulating Indonesia’s digital economy: Balancing growth, inclusion, and governance

Abstract Indonesia’s rapid digital transformation generates massive economic opportunities while posing new regulatory challenges. This study examines how Indonesia’s digital economy is governed through key regulatory domains: electronic commerce, data governance, and digital taxation, and assesses their impact on inclusive growth. The research utilizes an integrated theoretical lens, Institutional Theory and Digital Divide Theory, to analyze how formal rules and on-the-ground access to technology together shape outcomes. The research employs a multimethod approach, to understand how different regulatory models influence market participation, business compliance, and digital inclusion. The findings reveal significant regional disparities in internet access and digital business adoption, with rural and remote areas lagging behind urban centers. Micro, small, and medium-sized enterprises face disproportionate compliance burdens under current regulations, a gap partly addressed through cooperative initiatives like the Indonesia–Japan Track 1.5 Public–Private Partnership. A key insight is the complex impact of data localization policies: while strengthening digital sovereignty and user privacy, strict localization requirements can raise operational costs and deter foreign investment. The paper concludes with policy recommendations for improving regulatory implementation, expanding digital infrastructure and literacy, and fostering international cooperation to ensure Indonesia’s digital economy regulations promote equitable growth across its diverse archipelago.