Underground Economic Transformation on the Indonesia-Timor Leste Border: From Stigma to Inclusion Strategy

This study investigates the dynamics of the underground economy in the Indonesia–Timor-Leste border region, focusing on how cross-border informal activities evolve into a socially legitimized parallel economic system. Employing a qualitative case study approach, the research was conducted in four regencies of East Nusa Tenggara Province that directly border Timor-Leste, utilizing field observations, in-depth interviews, and policy document analysis. The findings reveal that underground economic practices are not merely acts of legal transgression but adaptive responses to structural exclusion, regulatory ambiguity, and the absence of effective state services. Three primary factors sustain these activities: strong kinship-based social networks, cost-efficiency rationality in the face of limited formal access, and weak governance across the border region. The study recommends a context-sensitive and inclusive policy framework that enhances the institutional capacity of local communities to support a gradual transition toward a more formal, equitable, and sustainable border economy.