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New Determinants of Growth in Small and Medium Sized Enterprises in Central and Eastern Europe: A Panel Data Analysis

Miroslav Mateev

American University in Bulgaria

(forthcoming in International Journal of Economic Research)

 

ABSTRACT

The purpose of this paper is to explore the main determinants of growth in small and medium sized enterprises (SMEs) in Central and Eastern Europe. The empirical research has suggested that firm growth is determined not only by the traditional characteristics of size and age but also by other firm-specific factors such as indebtedness, internal financing, future growth opportunities, process and product innovation, and organisational changes. No empirical evidence has been provided so far on which of these determining factors are associated with SMEs growth and performance in transition economies. Using a panel dataset of 560 fast growing small and medium enterprises from six transition economies we find evidence that firm size and age can explain to a large extend the growth in SMEs in these countries. Firm specific characteristics such as short-term liquidity, future growth opportunities, internally generated funds, and factor productivity are found to be important factors in determining a firm’s growth and performance. Economy-wide factors such as inflation and corporate income tax rate (but not gross domestic product) seem to have a significant effect on SMEs growth in transition economies.

Keywords: transition economy, small and medium enterprise, growth, panel data analysis

JEL classification: L25, L26, C23

 

New Determinants of Growth in Small and Medium Sized Enterprises in Central and Eastern Europe: A Panel Data Analysis (MSWord)