Small and Medium Enterprises and Economic Development

1
Small and Medium Enterprises and Economic
Development

• Asli Demirguc-KuntDecember 4, 2002
• New Technologies for Small- and Medium-Size
  Enterprise FinanceWashington, DC

THE WORLD BANK
2

• SMEs are high on the agenda of policymakers
• but there is little systematic cross-country
  analysis to support our policies.
• one of the reasons for this is the lack of
  consistent data on SMEs across countries
• New research in DECRG (Beck and Demirguc-Kunt)
  has started to address these issues

3

• SMEs are expected to boost efficiency and growth
  and lead to economic development because
• Engine of job creation
• Seedbed for innovation and entrepreneurship
• New entry, competition and flexibility

4
Data

• A uniform definition of SMEs across countries
  (250 employees/official)
• Include the size of the informal sector
• Cover a large number of countries (54/76)
• Ayyagari, Beck, Demirguc-Kunt (2002)

5
SMEs share in employment and GDP
Share (percent)
60
40
Employment
20
GDP
0
Low income
Middle income
High income
6
Informal sectors share in employment and GDP
Share (percent)
60
GDP
Employ-ment
40
20
0
Low income
Middle income
High income
7
Firm size and share in GDP
GDP share (percent)
100
Residual
80
60
Informal
40
20
SME
0
Low income
Middle income
High income
8
SMEs and policy
Black market premium
Govexpend
Financial development
Education
Inflation
Trade
a
a
a
b
b
SME250
0.37
-0.50
0.07
-0.30
-0.35
0.51
a
a
b
a
SMEOFF
0.34
-0.45
0.05
-0.07
-0.24
0.51
a
a
a
INFORMAL_GDP
-0.67
0.17
-0.53
-0.07
0.09
-0.42
9
SMEs, regulations and institutions
Entry regulations
Quality of institutions
NPROC
DURATION
COST
PRIGHTS
REGN
KK
a
a
c
a
a
SME250
-0.27
-0.24
-0.39
0.59
0.54
0.64
a
a
b
c
a
a
SMEOFF
-0.28
-0.22
-0.37
0.58
0.45
0.56
a
a
b
b
a
a
INFORMAL_GDP
0.34
0.28
0.38
-0.52
-0.59
-0.74
10
SMEs and growth obstacles
Anti-competitive policies
Taxes and regulation
Political instability
Infrastructure
Organized crime
Inflation
Corruption
Exchange rate
Financing
Street crime
Judiciary
a
c
a
b
SME250
-0.47
-0.34
-0.14
-0.40
-0.18
-0.14
-0.22
0.02
-0.29
0.04
-0.03
b
a
SMEOFF
-0.41
-0.30
-0.13
-0.34
-0.17
-0.08
-0.12
0.07
-0.22
-0.01
-0.03
a
a
a
a
a
a
a
a
b
a
0.38
0.69
0.57
0.46
0.54
0.73
0.82
0.07
0.75
0.44
0.76
INFORMAL_GDP
11
SMEs and historical factors
Ethnic fractionalization
Legal origin
Religion
Settler mortality
Catholic
Muslim
Other
French
Germany
Socialist
Protestant
U.K.
b
b
a
a
a
b
a
SME250
-0.67
-0.69
0.37
-0.31
0.03
-0.25
-0.19
0.31
0.20
-0.36
b
a
a
c
b
b
a
c
SMEOFF
-0.50
-0.32
0.22
-0.23
0.15
-0.21
0.01
0.21
0.27
-0.45
a
c
a
a
a
0.85
0.50
0.07
0.37
-0.36
0.02
-0.02
0.24
-0.21
0.05
INFORMAL_GDP
12
SMEs, growth, development and poverty
GDP CAP
POOR INCOME
GDP GROWTH
a
b
a

SME250
0.73
0.43
0.37
a
a
a

SMEOFF
0.65
0.44
0.37


a
a
a
INFORMAL_GDP
-0.41
-0.66
-0.65
13
Main conclusions

• As income increases firms migrate from the
  informal to formal sector and SMEs share in
  employment and income increases
• SMEs play an important role in promoting growth
  and development, including for the poor

14
Main conclusions

• But SMEs are more likely to be able to play this
  role in countries with
• better financial development and low financing
  constraints
• good policies (low inflation, distortions, entry
  regulations, high level of education)
• good institutions (control of corruption, rule of
  law, property rights)