The impact of SME sector on economic growth in Africa

Ho, Sin Yu and Beri, Parfait Bihkongnyuy (2024): The impact of SME sector on economic growth in Africa.

Abstract

Although small and medium-scale enterprises (SMEs) finance and technical support have become critical economic development strategies for many countries in Africa and numerous micro-level studies have examined their effects on firm performance, evidence of how SMEs impact economic growth and the causal pathways remains mixed and largely debatable. Based on different strands of the literature, this study hypothesises a nonlinear relationship between SMEs and economic growth. Regressing growth on SME data as measured by the number of newly registered businesses in 40 African countries from 2006 to 2022, we find support for a nonlinear relation of an inverted U-shape. The results suggest that African countries may pursue policies aimed at boosting SME support as a tool for macro-level development. However, the transient effects of SMEs also suggest the need to consider strategies to ensure that its effects remain positive and sustainable over the long run. While policymakers could consider country-specific studies to understand and design innovative strategies to support the SME sector, more research is required on the types of SMEs and the conditions under which they may influence growth in Africa.

• Item Type: MPRA Paper
• Language: English
• Keywords: Small and medium-size enterprises, SMEs, entrepreneurship, economic growth
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; P - Economic Systems > P5 - Comparative Economic Systems; P - Economic Systems > P5 - Comparative Economic Systems > P52 - Comparative Studies of Particular Economies

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