Upgrading and formalizing SMEs in MENA

Small and Medium Enterprises (SMEs) play a key role in the economic structure of developing countries. Which makes sense considering that they are mostly over-populated, their governments are low on budgets and inequality of opportunities is only natural. Economically speaking, SMEs constitute a major source of employment and generate significant domestic and export earnings (OECD, 2004).

Dr. Mona Said (Professor of Economics at the American University in Cairo) discusses two of the papers presented in a parallel session during the second day of the ERF 20th Annual Conference, looking at the upgrade and formalization of small and medium enterprises (SMEs) in MENA. The papers presented complementary evidence on the importance of certain factors, such as firm size, sector and degree of education.

[youtube http://www.youtube.com/watch?v=UaVtkXKi3YI]

The first study by Hampel-Milagrosa, Loewe and Reeg, addresses the question: Which Factors Determine the Upgrading of Small and Medium-Sized Enterprises (SMEs)? The paper presents results of comparative surveys across 3 developing countries; namely Egypt, Philippines and India. Dr. Said argues that the survey results emphasize the human capital element, and also pinpoint two policies that, even in absence of the enabling business environment, can result in substantial outcomes in terms of innovation.

The other paper, titled Firms Informality: A Model and Empirical Evidence for Lebanon by Harati and Shamru looks at the probability of SMEs formalization measured by tax registration and social security registration, in relation to factors of enterprises and entrepreneurs. Dr. Said explains that the paper highlights the importance of enforcement, where the authors examine an instrument that captures the degree of enforcement of tax registration and how it works in favor of firm formality.

Finally, Dr. Said finds the outcomes of both papers quite insightful, as they show that the available data sets can actually be quite informative if supplemented by intelligent analysis.

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