Smes and Economic Growth: Entrepreneurship or Employment

There has been increasing recognition of the importance of the SME sector in recent years; indeed, the contribution made by SMEs to overall economic development has become widely recognized in many of the newly industrialized economies. In an effort to go beyond some of the present empirical works, this study uses a dataset on both developed and developing economies to examine the contribution to economic growth from the SME sector. Based on data covering thirty-seven countries, over the period from the 1960s to the 1990s, our empirical results support the hypothesis that small businesses are beneficial to economic prosperity; however, this study highlights considerable diversity in terms of the patterns of the contribution, by the SME sector, to overall economic growth. In the pursuit of economic growth, SMEs in the high-income economies will generally exploit entrepreneurship, whilst in the less-developed economies they will tend to drive the job-creation function.