Small and Medium-Sized Enterprises (SMEs): The Engine of Economic Growth through Investments and Innovation

TLDR

SMEs are vital for local economic development, creating jobs, reducing poverty, and driving growth, yet they face significant funding barriers. This study examines how investments and innovation influence territorial economic growth, measured by turnover, among Romanian active enterprises—including SMEs—between 2009 and 2017. The analysis shows that investment expenditures consistently boost turnover across all firm sizes, innovation raises turnover overall but not significantly for SMEs, and larger firm size and higher numbers of micro‑units also positively correlate with turnover, underscoring the need for targeted support to foster SME development.

Abstract

Small and medium-sized enterprises (SMEs) are crucial for local economic development, playing a noteworthy role in job creation, poverty alleviation and economic growth, but they encounter many funding barriers. The purpose of the current paper is to investigate the impact of investments and innovation on territorial economic growth, as measured by turnover, for Romanian active enterprises, especially SMEs, over the period 2009–2017. By estimating several log–log linear regressions, the quantitative outcomes provide support for a positive influence of investments on turnover. The association was confirmed both for all active enterprises at the national level, as well as for micro, small, middle-sized and big companies. As regards expenditures on innovation, a positive impact on turnover was acknowledged for all enterprises and particularly for big companies, but there was an absence of any statistically significant relation in the case of SMEs. The impact of firm size on turnover was positive for all active enterprises at the national level, along with active micro-units. Also, the estimation results show a positive impact of the number of active micro-units on territorial economic growth. The empirical findings are relevant to managers and policymakers in order to stimulate, encourage and offer support to SMEs’ development through their strategies.