Demystifying small and medium enterprises’ (SMEs) performance in emerging and developing economies

Abstract

Applying the General-to-Specific modelling on World Bank Enterprise Survey data for 266 economies, this paper models five performance indicators based on 80 potential factors derived from firm characteristics, finance, informality, infrastructure, innovation, technology, regulation, taxes, trade and workforce concerning small and medium enterprises (SMEs). We find that the factors vary regarding statistical significance and magnitude between small and medium enterprises. For example, the percent of firms using e-mail to interact with clients/suppliers has a positive effect on the annual employment growth of medium enterprises, but not the case of small enterprises. The proportion of investments financed by equity or stock sales has an adverse impact on small enterprises, while there is no such effect on medium enterprises. We find that more drivers explained the annual employment growth and the percent of firms buying fixed assets compared to capacity utilization, annual labor productivity growth, and real annual sales growth. Keywords: SME, Performance, Firm characteristics, Finance, Informality, Infrastructure, Innovation and technology, Regulation and taxes, Trade, Workforce, Jel Classification: C51, D22, L25