ECO-BUSINESS MODEL INNOVATION AND INSTITUTIONAL SUPPORT FOR GREEN MSME PERFORMANCE IN RURAL INDONESIA

Abstract

Rural micro, small, and medium enterprises (MSMEs) in developing countries face a dual challenge: they are highly vulnerable to environmental degradation while also holding strong potential to generate community-based sustainability solutions. This study examines how eco-business model innovation and institutional support jointly influence green MSME performance in rural Indonesia. Drawing on the Resource-Based View, Institutional Theory, and the eco-business model innovation framework, the study develops a capability-context interaction model to explain green performance outcomes among rural enterprises. A quantitative cross-sectional survey was conducted with 248 rural MSME owners across West Java, Central Java, and West Sumatra using multi-stage cluster sampling. The hypotheses were tested using Partial Least Squares Structural Equation Modeling (PLS-SEM) with 5,000 bootstrap subsamples. The results show that eco-business model innovation has a significant positive effect on green MSME performance, institutional support also has a significant positive effect on green MSME performance, and institutional support positively moderates the relationship between eco-business model innovation and green MSME performance. The structural model explains 61.4% of the variance in green MSME performance. These findings highlight that green performance in rural MSMEs is shaped not only by internal innovation capabilities but also by the strength of the surrounding institutional environment. The study contributes to green entrepreneurship and rural development literature by demonstrating the interactive role of capability and context in supporting sustainable MSME performance in developing economies.