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Drivers of SME Formation in Indian States: The Empirics

Pradhan, Jaya Prakash and Husain, Tareef (2021): Drivers of SME Formation in Indian States: The Empirics.

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Abstract

The development of small and medium enterprises (SMEs) sector is a key policy priority as these enterprises play a critical role in the growth and development process of any economy. The present study is motivated to explore the regional dimensions of entry of new SMEs across Indian states and sectors covering an extensive study period 1980─2007. It further expands the literature on formation of firms from the sub-national perspective, empirically uncovering regional factors that significantly determine the formation of new firms. Findings suggest that new SME formation in India is characterized by a concentrated regional pattern during the study period with a few regions accounting for disproportionate share of the number of new SMEs formed. Also, Indian sub-national entities exhibited considerably disparity in the entry rate of new SMEs. Regional factors like local market size, availability of skills, technological specialization of manufacturing sector, land transportation networks, and entrepreneurial culture tend to play positive role in the formation rate of SMEs in Indian states.

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