Small and Medium Enterprises Across the Globe

Abstract

This paper analyzes the relationship between the relative size of the small and medium enterprise (SME) Sector and the business environment in 76 countries. The paper first describes a new and unique cross-country database that presents consistent and comparable information on the contribution of the SME sector to total employment in manufacturing and GDP across different countries. We then relate the importance of SMEs and the informal economy to indicators of different dimensions of the business environment. We find that several dimensions of the business environment, such as lower costs of entry and better credit information sharing are associated with a larger size of the SME sector, while higher exit costs are associated with a larger informal economy.

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Correspondence to Thorsten Beck.

Appendix

Appendix

TABLE IVariable definitions and sources

Variable Variable Definition Source
Indicators of the SME Sector and the Informal Sector   
SME250 Share of the SME sector in the total formal labor force in manufacturing when 250 employees is taken as the cutoff for the definition of an SME. See Appendix A2
SMEOFF Share of the SME sector in total formal labor force in manufacturing when the official country definition of SMEs is used. See Appendix A2
SME_GDP Share of the SME sector, as defined by official sources, relative to GDP. See Appendix A3
INFORMAL Share of the labor force of the shadow economy as a percent of official labor force. Schneider (2000)
INFORMAL_GDP Average size of the shadow economy as a percentage of official GDP. Friedman et al. (2000), Schneider and Enste (1998)
Business Environment Indicators   
Entry Costs The legal costs of each procedure involved in formal registration of a company, relative to income per capita, that a start-up must bear before it becomes legally operational. The text of the Company Law, the Commercial Code, and specific regulations and fee schedules are used to calculate costs. If there are conflicting sources and the laws are not clear, the most authoritative source is used. The constitution supersedes the company law, and the law prevails over regulations and decrees. If conflicting sources are of the same rank, the source indicating the most costly procedure is used, since an entrepreneur never second-guesses a government official. In the absence of fee schedules, a governmental officer’s estimate is taken as an official source. In the absence of a government officer’s estimates, estimates of incorporation lawyers are used. If several incorporation lawyers provide different estimates, the median reported value is applied. In all cases, the cost excludes bribes. World Bank Doing Business Database
Contract Enforcement Costs The indicator measures the official cost of going through court procedures, including court costs and attorney fees where the use of attorneys is mandatory or common, or the costs of an administrative debt recovery procedure, expressed as a percentage of the debt value. World Bank Doing Business Database
Exit Costs All legal court costs and other fees that are incurred when closing a limited liability company, expressed as a percentage of the total value of the estate. The cost of the bankruptcy proceedings is calculated based on answers by practicing insolvency lawyers. If several respondents report different estimates, the median reported value is used. Costs include court costs, as well as fees of insolvency practitioners, independent assessors, lawyers, accountants, etc. Bribes are excluded. The cost figures are averages of the estimates in a multiple-choice question, where the respondents choose among the following options: 0–2%, 3–5%, 6–10%, 11–15%, 16–20%, 21–25%, 26–50%, and more than 50% of the estate value of the bankrupt business. World Bank Doing Business Database
Property Costs Cost to register property. These include fees, transfer taxes, stamp duties, and any other payment to the property registry, notaries, public agencies, or lawyers, if required by law. Other taxes, such as capital gains tax or value-added tax (VAT), are excluded from the cost measure. If cost estimates differ among sources, the median reported value is used. Total costs are expressed as a percentage of the property value, calculated assuming a property value of 50 times income per capita. World Bank Doing Business Database
CreditInformation Index This index measures rules affecting the scope, access and quality of credit information available through either public or private bureaus. A score of 1 is assigned for each of the following six features of the credit information system: (i) Both positive and negative credit information (for example on payment history, number and kind of accounts, number and frequency of late payments, and any collections or bankruptcies) is distributed. (ii) Data on both firms and individuals are distributed. (iii) Data from retailers, trade creditors and/or utilities as well as financial institutions are distributed. (iv) More than five years of historical data is preserved. (v)Data on loans of above 1 percent of income per capita is distributed. (vi) By law, consumers have the right to access their data. The index ranges from 0 to 6, with higher values indicating that more credit information is available from either a public registry or a private bureau to facilitate lending decisions World Bank Doing Business Database
Rigidity ofEmployment Index The Rigidity of Employment index is the average of three sub-indices: a Difficulty of Hiring index, a Rigidity of Hours index, and a Difficulty of Firing index. All sub-indices have several components and take values between 0 and 100, with higher values indicating more rigid regulation. World Bank Doing Business Database
Instruments   
Legal Origin An indicator of the type of legal system in the country. It takes the value 1 for English Common law, 2 for French Civil Law, 3 for German Civil Law, 4 for Scandinavian Civil Law and 5 for Socialist Law countries. La Porta et al.(1999), Djankovet al. (2003)
Religion An indicator of the dominant religious group in the country. It takes the value 1 for Catholics, 2 for Protestants, 3 for Muslims, and 4 for Others. La Porta et al.(1999)
Ethnic Fractionalization Probability that two randomly selected individuals in a country will not speak the same language. Easterly and Levine (1997)
Latitude Absolute value of the latitude of a country, scaled between zero and one. La Porta et al.(1999)

TABLE IIOfficial country definitions of SMEs

Country Official Definition of SME Time Period of Data Source
Albania 500 1994–95 United Nations Economics Commission for Europe
Argentina 200* 1993 Inter-American Development Bank-SME Observatory
Australia 100 1991 APEC, 1994: The APEC Survey on Small and Medium Enterprises.
Austria 250 1996 Eurostat
Azerbaijan 250* 1996–97 United Nations Economics Commission for Europe
Belarus 250* 1996–97 United Nations Economics Commission for Europe
Belgium 250* 1996–97 Eurostat
Brazil 250 1994 IBGE-Census 1994
Brunei 100 1994 APEC Survey
Bulgaria 250* 1995–97, 1999 Center for International Private Enterprise, Main characteristics of SME: Bulgaria Country Report, Institute for Market Economics
Burundi 100 90s Regional Program on Enterprise Development Paper # 30
Cameroon 200 90s Regional Program on Enterprise Development Paper # 106
Canada 500* 1990–93, 1996, 1998 Presentation to the Standing Committee on Industry, Science and Technology, APEC Survey, Globalization and SME 1997(OECD)
Chile 200* 1996 Inter-American Development Bank-SME Observatory
Colombia 200 1990 Inter-American Development Bank-SME Observatory
Costa Rica 100 1990, 92–95 Inter-American Development Bank-SME Observatory
Cote D’Ivoire 200 90s Regional Program on Enterprise Development Paper # 106, #109
Croatia 250 1998 United Nations Economics Commission for Europe, Center for International Private Enterprise
Czech Republic 250* 1996 United Nations Economics Commission for Europe
Denmark 500 1991–92 Globalization and SME 1997(OECD), International Labor Organization
Ecuador 200 1994 Inter-American Development Bank-SME Observatory
El Salvador 150* 1993 Inter-American Development Bank-SME Observatory
Estonia 250* 1996–97 United Nations Economics Commission for Europe
Finland 250* 1996–97 Eurostat Database
France 500 1991, 1996 International Labor Organization, OECD SME Outlook
Georgia 250* 1996–97 United Nations Economics Commission for Europe
Germany 500 1991, 1993–98 Globalization and SME 1997 (OECD), Fourth European Conference paper
Ghana 200 90s Regional Program on Enterprise Development Paper # 106, #109
Greece 500 1988 OECD
Guatemala 200* 1990 Inter-American Development Bank-SME Observatory
Honduras 150 1990 Inter-American Development Bank-SME Observatory
Hong Kong, China 100 1993, 2000 APEC Survey, Legislative Council 17 Jan 2005
Hungary 250 1997 United Nation Economic Commission for Europe
Iceland 100 1996 Eurostat Database
Indonesia 100 1993 OECD Paper, Speech of State Minister of Cooperatives and SME in Indonesia
Ireland 500 1997 Globalization and SME 1997 (OECD)
Italy 200 1995 Russian SME Resource Center, Eurostat Database
Japan 300 1991, 1994, 1996,1998, 1999 Globalization and SME 1997 (OECD), SME Agency in Japan
Kazakhstan 500* 1994 United Nation Economic Commission for Europe
Kenya 200 90s Regional Program on Enterprise Development Paper # 106, #109
Korea, Rep. 300 1992–93, 1997, 1999 APEC Survey, OECD, Paper titled “Bank Loans to Micro-enterprises, SMEs and Poor Households in Korea”
Kyrgyz Republic 250* 1996–97 United Nation Economic Commission for Europe
Latvia 500* 1994–95 United Nation Economic Commission for Europe
Luxembourg 250* 1996 Eurostat Database
Mexico 250 1990–97 Inter-American Development Bank-SME Observatory, APEC Survey
Netherlands 100 1991–98 G8 Global Marketplace for SME, Globalization and SME 1997(OECD)
New Zealand 100* 1991, 1998–00 SMEs in New Zealand, Structure and Dynamics, APEC Survey
Nicaragua 100 1992 Inter-American Development Bank-SME Observatory
Nigeria 200 2000 Regional Program on Enterprise Development Paper # 118
Norway 100 1994, 1990 European Industrial Relations Observatory
Panama 200 1992 Inter-American Development Bank-SME Observatory
Peru 200 1994 Inter-American Development Bank-SME Observatory
Philippines 200 1993–95 APEC Survey, Situation Analysis of SME in Laguna
Poland 250 1996–97, 1999 United Nation Economic Commission for Europe
Portugal 500 1991, 1995 OECD
Romania 250 1996–1999 United Nation Economic Commission for Europe, Center for International Private Enterprise
Russian Federation 250* 1996–97 United Nation Economic Commission for Europe
Yugoslavia Fed. Rep. 250* 1999 Center for International Private Enterprise
Singapore 100 1991, 1993 APEC Survey
Slovak Republic 500 1994–95 United Nations Economic Commission for Europe
Slovenia 500* 1994–95 United Nations Economic Commission for Europe, SME in Central and Eastern Europe, Barriers and Solution by F.␣Welter
South Africa 100 1988 World Bank Report
Spain 500 1991, 1995 OECD
Sweden 200 1991, 1996 OECD
Switzerland 500* 1991, 1995, 1996 OECD
Taiwan 200 1993 APEC Survey
Tajikistan 500* 1994, 1995 United Nations Economic Commission for Europe
Tanzania 200 90s Regional Program on Enterprise Development Paper # 106, #109
Thailand 200 1991, 1993 APEC Survey
Turkey 200* 1992, 1997 SME in Turkey
Ukraine 250* 1996 United Nations Economic Commission for Europe
United Kingdom 250* 1994, 1996–00 Department of Trade and Industry, UK
United States 500 1990–1998 Statistics of US Businesses: Microdata and Tables
Vietnam 200 1995 Nomura Research Institute Papers
Zambia 200 90s Regional Program on Enterprise Development Paper # 106, # 109
Zimbabwe 200 90s Regional Program on Enterprise Development Paper # 106, #109
  1. *Indicates either the country has no official definition of SME or we don’t have data for the country’s official cut off for SME.

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Ayyagari, M., Beck, T. & Demirguc-Kunt, A. Small and Medium Enterprises Across the Globe. Small Bus Econ 29, 415–434 (2007). https://doi.org/10.1007/s11187-006-9002-5

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Keywords

  • Small and Medium Enterprises

JEL classifications

  • L11
  • L25
  • L26
  • O17