Vietnamese Smes

Journal of Economic Growth, 10, 199–229, 2005 © 2005 Springer Science+Business Media, Inc. Manufactured in The Netherlands.

SMEs, Growth, and Poverty: Cross-Country Evidence

THORSTEN BECK

The World Bank, 1818 H Street NW, Washington D.C. 20433

ASLI DEMIRGUC-KUNT

The World Bank, 1818 H Street NW, Washington D.C. 20433

ROSS LEVINE

Department of Economics, Brown University, 64 Waterman Street, Providence RI 02912, The NBER This paper explores the relationship between the relative size of the Small and Medium Enterprise (SME) sector, economic growth, and poverty alleviation using a new database on the share of SME labor in the total manufacturing labor force. Using a sample of 45 countries, we find a strong, positive association between the importance of SMEs and GDP per capita growth. The data do not, however, confidently support the conclusions that SMEs exert a causal impact on growth. Furthermore, we find no evidence that SMEs alleviate poverty or decrease income inequality. Keywords: Firm size, market structure, economic development JEL classifications: O1, O2, L11, L25

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Introduction

To accelerate growth and reduce poverty, the World Bank Group and other international aid agencies provide targeted assistance to small and medium size enterprises (SMEs) in developing economies. For example, the World Bank Group approved more than $10 billion in SME support programs over the period 1998 – 2002 and US $1.3 billion in 2003.1 This pro-SME policy is based on three core arguments (World Bank, 1994, 2002, 2004). First, SME advocates argue that SMEs enhance competition and

1 These statistics are from World Bank (2002, 2004). The World Bank provides direct and indirect support to SMEs. In terms of World Bank activities, 80 percent of World Bank programs involve direct financial assistance to SMEs, while 20 percent of World Bank programs involve indirect support such as technical assistance for SMEs and for institutions that support SME development....