|
|
|
| The Impact of Small and Medium Enterprises on Economic Growth: Theoretical analysis and Empirical Evidence |
| HUANG Xuhan, MA Guangrong, XIONG Rui
|
| School of Public Finance and Taxation, Southwestern University of Finance and Economics, School of Finance, Renmin University |
|
|
|
Abstract Small and medium enterprises (SMEs) are the mainstay of national economic growth and social development, an important foundation for building a modernized economic system and promoting high-quality economic development, an important support for expanding employment and improving people's livelihoods, and an important source of entrepreneurship. Since the 18th National Congress of the Communist Party of China, the central government has attached great importance to the development of SMEs. The legal and policy support system related to SMEs has been continuously improved to encourage and promote the sustained and healthy development of SMEs, and push forward the continuous enhancement of SMEs' comprehensive strength, core competitiveness, and ability to fulfill their social responsibilities. State support for SMEs has risen to a new level, and understanding these support policies and evaluating their policy effects requires an in-depth analysis of the role of SMEs in economic growth.
In the theoretical part, this study identifies the links and differences between entrepreneurship and SMEs, and concludes that SMEs are an important vehicle for connecting entrepreneurship and economic growth, but the role of SMEs themselves has not been adequately investigated due to theoretical and empirical shortcomings. This study proposes two main mechanisms through which SMEs promote economic growth. First, the mechanism of market competition: the increase in the number of SMEs can promote market competition and reduce the market power of incumbent enterprises, thus effectively improving the efficiency of resource allocation, reducing the loss of economic efficiency brought about by monopolistic behavior, and leading to an increase in the level of output. Second, innovation mechanism: as one of the main carriers of innovation activities, SMEs are able to promote the improvement of total factor productivity (TFP) by promoting technological progress and optimization of the production process, providing impetus for economic growth.
In the empirical part, this paper constructs Bartik IV based on the initial regional industrial structure and the growth rates of SMEs in different industries to address the possible endogeneity between SMEs and economic growth. Utilizing China's industrial and commercial registration data and urban panel data from 2004-2019 provided by the China Urban Statistical Yearbook, this study examines the role of the increase in the number of SMEs in promoting regional economic growth.
The findings of this study show that for every 1% increase in the number of SMEs, the regional GDP will significantly increase by about 0.22%. This paper also validates the market competition mechanism and innovation mechanism. The results show that the growth of SMEs increases the level of competition and significantly reduces the market power of incumbent firms, which in turn contributes to the increase in the level of output. At the same time, an increase in the number of SMEs will also lead to an increase in the number of regional patents and regional total factor productivity, which promotes economic growth by leading to technological advances in production and improvements in production efficiency in the region. This paper also conducts a variety of robustness tests, including replacing the construction method of IV and changing the measurement of explanatory variables, and the results verify the robustness of the conclusions. In addition, this study examines the heterogeneity of the contribution of SMEs to economic growth within different regions and across different types of SMEs. At the regional level, the results suggest that an increase in the number of SMEs is more likely to lead to regional economic growth in regions with a lower level of economic development, as well as in regions with a lower degree of marketization. For different types of SMEs, the findings of this study suggest that the stronger the innovation capacity of SMEs, the more positively they contribute to regional economic growth.
The contribution of this paper is reflected in the following points: firstly, this paper utilizes the Bartik IV to address the endogeneity between SME development and regional economic growth, thus more accurately assessing the role of SMEs in contributing to economic growth. Secondly, this paper analyzes in detail the mechanism through which SMEs contribute to economic growth by enhancing market competition and promoting innovative activities. Finally, the paper examines the heterogeneous impact of SMEs to economic growth in different regions and the heterogeneous effect of different types of SMEs on economic growth.
This paper makes the following policy implications for SME development. First, China should support the development of SMEs, which includes not only relief and assistance for incumbent SMEs, but also encouragement for market access. Second, efforts should be made to develop high-quality SMEs, increase support and incentives for them, and promote the development of SMEs' specialization, refinement, characteristics and novelty, which can shape the competitive advantages of SMEs, so as to provide impetus for high-quality economic growth. Thirdly, support policies for SMEs should focus more on fostering the innovation capacity of SMEs. Innovation is an important source of motivation for SMEs to promote economic growth, and compared with policies that improve the performance of SMEs in the short term, fostering the innovation capacity of SMEs is more likely to lead to sustained economic growth in the long term.
|
|
Received: 27 June 2023
Published: 22 May 2025
|
|
|
|
|
|
|
|
