Does the lack of resources matter in a dual economy: Decoding MSMEs productivity and growth

Abstract

In this paper, we examine the factors influencing labor productivity and sales growth among micro, small, and medium-sized enterprises (MSMEs) within a middle-income economy. Although MSMEs play a pivotal role in employment within middle-income countries, they often display a lower economic value-added, pointing to underlying challenges in labor productivity. Using a longitudinal dataset of firms and employing both quantile regressions and machine learning techniques, we find that SMEs led by older, male, and more seasoned managers tend to exhibit higher productivity. Similarly, companies with a larger proportion of highly educated employees, affiliation to business groups, and engagement in R&D activities demonstrate superior performance. Finally, to improve the performance of MSMEs in developing economies, our results suggest that implementing targeted, well-defined vertical public support programs would be an effective public policy approach.