National Income and MSME Density: A Cross-Country Empirical Investigation

Abstract

Knowledge of determinants of MSME density is important to inform evidence-based economic policy, especially in developing economies where MSMEs are the main drivers of employment, poverty reduction, and inclusive growth. This study fills an important knowledge gap in the body of empirical literature by offering cross-country quantitative data on how the level of national income determines the formal MSME environment. This research paper examines the factors of the density of Micro, Small and Medium Enterprise (MSME) within economies through Ordinary Least Squares (OLS) regression analysis. The Data had been collected through SME finance forum, which was a collection of 150 cross-country observations, including the years 2002 to 2018. MSME density per 1,000 people is the dependent and GNI per capita (USD), and Year were the independent variables. The OLS regression model is statistically significant (F(2, 147) = 8.42, p = 0.0003) with GNI per capita and Year having a positive but marginally non significant effect ( 0.0003992, p = 0.003 and 1.658, p = 0.054, respectively). These results imply that national income is a major contributor to formal MSME concentration, which is why income-growth and formalization policies should be specifically implemented in less affluent economies. The model needs to be extended to include more structural determinants in future research, including access to credit and quality of regulations, digital infrastructure, and institutional capacity, and use the panel data approach and more recent and current datasets as of 2018 to reflect the contemporary changes in the global MSME environment and increase the external validity of the findings.