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

TLDR

The study applies General‑to‑Specific modeling to World Bank Enterprise Survey data from 266 economies to estimate five performance indicators for small and medium enterprises based on 80 potential factors. Using this modeling approach, the authors analyze 80 firm‑level variables spanning finance, informality, infrastructure, innovation, technology, regulation, taxes, trade, and workforce to derive the indicators. Results show that factor effects differ between small and medium firms: e‑mail usage raises medium‑enterprise employment growth but not small, equity financing harms small but not medium enterprises, and more drivers explain employment growth and fixed‑asset purchases than capacity utilization, labor productivity, or sales growth.

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.