Palestine Economic Policy Research Institute - December 31, 2009 - Back to Resources Page

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In recent years, increasing attention has been paid by academic and policy
circles to the importance of micro, small and medium enterprises
(MSMEs). The Asian Financial Crisis of 1997 was particularly significant
in promoting this trend since the MSMEs appeared relatively immune to
the crisis while many large enterprises collapsed.

The hypothesis of a positive relation between, on the one hand, growth,
employment, technical and managerial innovation, competition and
poverty reduction, and on the other, the level of participation of MSMEs in
the economy, has some evidence backing it. However, the correlations are
still not rigorously proven. This is due to the usual statistical difficulties
(such as poor data quality and autocorrelations) and the absence of a
universal definition for MSMEs. For example, the European Union defines
MSMEs as those enterprises employing less than 250 workers, whereas in
the United States, 500 is the maximum number of workers in an MSME.

There are obvious positive advantages to MSMEs, such as their significant
contribution to employment at relatively low capital cost. For example,
one study estimates the intensity of employment in MSMEs to be four
times that of large establishments in India. However, there are also
negative implications that ought not be overlooked, such as the lack of
clear business strategy, weak management, low capital intensity,
difficulties in financing and overexploitation of labour, particularly family
labour.

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Palestine Economic Policy Research Institute - December 31, 2009 - Back to Resources Page