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Small and Medium Enterprises: Overcoming Growth Constraints

What is the impact of Small and Medium Enterprises on economic development and poverty alleviation? While SMEs have been at the center of the policy debate for quite some time, little cross-country analytical work has been undertaken in this area, mostly due to the dearth of consistent cross-country data. New country-level and firm-level databases allow a more rigourous analysis of SME-related questions.

This research has shown:

1. While a larger share of SMEs in manufacturing is correlated with faster economic growth, there is no evidence of causality from SMEs to economic growth or poverty reduction.

2. Smaller firms are more constrained by financial and institutional underdevelopment, while the development of financial and legal institutions helps level the playing field between small and large firms.

Growth Constraints Across Firm of Different Sizes

The World Bank Group has a substantial portfolio of small and medium-size enterprise (SME) related activities. More than $10 billion in SME support programs were approved in the past years, $1.3 billion alone in 2003. Although developing country policymakers are very interested in assisting the SME sector and the World Bank is often involved in helping design these strategies, there is relatively little systematic research in this area and the rationale for these efforts remains vague.

A recent research project investigated the link between growth, poverty reductions and the SME segment in manufacturing, the determinants of firm size, financing patterns across firms of different sizes, the growth obstacles faced by firms of different sizes and the role of financial development in overcoming these growth constraints. In the context of this project, a unique database on the importance of SMEs in manufacturing across countries was compiled. Finally, innovative techniques to overcome SMEs' financing constraints were explored.

Recently completed Investment Climate Assessments (ICA) for individual developing countries have enabled further work into the issues of growth obstacles and the extent to which they are binding for firms of different sizes. Other work is exploring cross-country determinants of different growth obstacles.




Policy Research Working Papers

For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”). 

WPS6706Business environment, economic agglomeration and job creation around the worldClarke, George; Li, Yue; Xu, Lixin Colin2013/11
WPS6688Market facilitation by local government and firm efficiency : evidence from ChinaCull, Robert; Xu, Lixin Colin; Yang, Xi; Zhou, Li-An; Zhu, Tian2013/11
WPS6508The impact of consulting services on small and medium enterprises: evidence from a randomized trial in MexicoBruhn, Miriam; Karlan, Dean; Schoar, Antoinette2013/06
WPS6352Government connections and financial constraints : evidence from a large representative sample of Chinese firmsCull, Robert; Li, Wei; Sun, Bo; Xu, Lixin Colin2013/02
WPS6316Explaining Africa's (Dis)advantageHarrison,Ann E.; Lin, Justin Yifu; Xu,L. Colin2013/01

WPS5632How can we learn whether firm policies are working in africa ? challenges (and solutions?) for experiments and structural modelsMcKenzie, David2011/04
WPS5642Stimulating managerial capital in emerging markets : the impact of business and financial literacy for young entrepreneursBruhn, Miriam; Zia, Bilal2011/04
WPS5573Does management matter ? evidence from IndiaBloom, Nicholas; Eifert, Benn; Mahajan, Aprajit; McKenzie, David; Roberts, John2011/02
WPS5122Female-owned firms in Latin America : characteristics, performance, and obstacles to growthBruhn, Miriam2009/11
WPS4944Impact assessments in finance and private sector development : what have we learned and what should we learn ?McKenzie, David2009/05
WPS4934Innovative firms or innovative owners ? determinants of innovation in micro, small, and medium enterprisesde Mel, Suresh; McKenzie, David; Woodruff, Christopher2009/05
WPS4788Drivers and obstacles to banking SMEs : the role of competition and the institutional frameworkde la Torre, Augusto; Martinez Peria, Maria Soledad; Schmukler, Sergio L.2008/12
WPS4785Bank financing for smes around the world : drivers, obstacles, business models, and lending practicesBeck, Thorsten; Demirguc-Kunt, Asli; Martinez Peria, Maria Soledad2008/11
WPS4771The typology of partial credit guarantee funds around the worldBeck, Thorsten; Klapper, Leora F.; Mendoza, Juan Carlos2008/11
WPS4649Bank involvement with SMEs : beyond relationship lendingde la Torre, Augusto; Martinez Peria, Maria Soledad; Schmukler , Sergio L.2008/06
WPS4635Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Sotode Mel, Suresh; McKenzie, David; Woodruff, Christopher2008/05
WPS3984A firm-level analysis of small and medium size enterprise financing in PolandKlapper, Leora; Sarria-Allende, Virginia; Zaidi, Rida2006/08
WPS3820How important are financing constraints ? The role of finance in the business environmentAyyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav2006/01
WPS3485Finance, firm size, and growthBeck, Thorsten; Demirguc-Kunt, Asli; Laeven, Luc; Levine, Ross2005/01
WPS3342Financing small and medium-size enterprises with factoring: global growth and its potential in eastern EuropeBakker, Marie-Renee; Klapper, Leora; Udell, Gregory F.2004/06
29898SMEs, growth, and povertyBeck, Thorsten; Demirguc-Kunt, Asli2004/02
WPS3204The determinants of financing obstaclesThorsten Beck; ; Luc Laeven; Vojislav Maksimovic2004/02
WPS3127Small and medium enterprises across the globe : a new databaseAyyagari, Meghana; Beck, Thorsten; Demirguc-Kunt, Asl2003/08
WPS2997Financial and legal institutions and firm sizeBeck, Thorsten; Demirguc-Kunt, Asli; Maksimovic, Vojislav2003/03
WPS2933Small and medium size enterprise financing in Eastern EuropeKlapper, Leora; Sarria-Allende, Virginia; Sulla, Victor2002/12
WPS2905Financing patterns around the world : the role of institutionsBeck, Thorsten; Asl Demirguc-Kunt; Maksimovic, Vojislav2002/10
WPS2784Financial and legal constraints to firm growth - Does size matter?Beck, Thorsten; Demirguc-Kunt, Asli; Maksimovic, Vojislav2002/02
WPS2656The ability of banks to lend to informationally opaque small businessesBerger, Allen N.; Klapper, Leora F.; Udell, Gregory F.2001/08


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