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High but Fragile Growth: Fostering SMEs development to improve Cambodia’s economic resilience

Sam, Vichet (2020): High but Fragile Growth: Fostering SMEs development to improve Cambodia’s economic resilience.

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Abstract

Cambodia has recorded an impressive growth over the last two decades at around 8% per annum, but this progress remains fragile due to its export-led growth strategy with a narrow economic base, making the country highly expose to external shocks as seen during the global financial crisis in 2008-2009 and recent Covid-19 shock. This fragility can be costly for a sustainable development that requires a discussion of how to boost the resilience of the economy. Using data from various sources, this paper presents Cambodia’s economic achievements since 1999, why the kingdom is highly exposed to external risks, and suggests the development of SMEs as a key element to improve the economic resilience because a strong SME sector would stimulate domestic demand through job creation, attract FDI in higher value-added sectors and assure equitable income distribution. Conditional correlation analysis has proven, among ASEAN countries, a significant negative correlation between SME sectoral development and economic volatility, while a positive correlation with economic growth is also found, suggesting that SMEs development can promote a strong and resilient growth. To boost SMEs development, Cambodia has to put more efforts, among other factors, in the formalization of SMEs, skills development for youth, infrastructure development, digital transformation process, and promotion of national savings and riel usage, as discussed and demonstrated in this paper.

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