The economic impact of small and medium-sized enterprises (SMEs): A cross-country analysis of Latin America and the Caribbean

Economic experts and policy makers have argued that the private sector and in particular small businesses is the engine for economic development in both developed and developing countries. The most frequently cited reason for this is rooted in the significant role small businesses play in job creation, productivity growth and innovation.;Over the last ten years research interest in testing this concept has significantly increased. This study sought to explore the impact of small and medium-sized enterprises (SMEs) on economic growth and poverty alleviation in Latin America and the Caribbean (LAC) using a cross-country analysis econometric approach. The study also investigated the impact of an effective business environment on growth and poverty levels.;This study found that while cross-country comparisons provide no evidence that SMEs cause economic growth or reduce poverty in Latin America and the Caribbean, they provided qualified evidence that an effective business environment does have a positive impact on growth and poverty reduction. This finding supports institutional theory and complements industry-level, firm-level and survey evidence that shows a positive association between a competitive business environment with entrepreneurship, productivity and growth.;This study concludes that the economic potential of the SME sector in Latin America and the Caribbean could be enhanced with improvements in the business environment and reduction in income inequality.