Do SME Policy Improve Firm Productivity? Empirical Evidence from Latin America and China

  •  Peiyuan Xu    


Based on World Bank Enterprise Survey dataset, this paper uses instrumental variables regression to examine whether Small and Medium Enterprises (SMEs) are more efficient and if SMEs policies (SME Policy) have any influence on firm-level Total Factor Productivity (TFP) in two important emerging economies: Latin America and the Caribbean (LAC) and China. The results show that, first, there is a positive correlation between firm size and TFP in LAC but not in China. Second, training, line of credit/loan for SMEs are proved to have a significant positive effect on firm TFP. Specifically, for Chinese firms, the training programs are most effective while for LAC firms, loan and credit are most effective. Third, R&D related innovation improves the efficiency, especially for Chinese firms. Fourth, government shareholding improves efficiency in China since they may provide some help in acquiring loans, while in LAC countries, the government shareholding has a negative effect. Based on above mentioned results, I suggest that Latin American countries should set financial relaxing as the primary goal of SME policies and China should provide more training programs and improve incentive mechanism in technology innovation for SMEs.

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