Entrepreneurship and SME growth: evidence from advanced and laggard transition economies

Abstract

PurposeThis paper seeks to examine the impact of firms' technological capability and other firm and environmental characteristics on the growth of small and medium‐sized enterprises (SMEs) in six transition countries at different stages of transition. It compares three advanced Central Eastern European countries (Poland, Hungary, and Czech Republic) with three laggard countries in South Eastern Europe (Albania, Macedonia, and Serbia and Montenegro).Design/methodology/approachA theoretical framework is proposed based on three groups of factors influencing SME growth: innovative and entrepreneurial features of the firm, characteristics of the firm, and those related to the institutional/business environment. Subsequently this paper uses the Business Environment and Enterprise Performance Survey (BEEPS) conducted by the World Bank/EBRD in 2002 and 2005 to test a number of hypotheses regarding the determinants of SME growth.FindingsThe two groups of countries have similarities and differences: both display similar trends with respect to the growth process; both are affected by entrepreneurship activities positively; but the institutional barriers affecting the two groups are somewhat different. It was also found that, despite the growing importance of SMEs in all transition economies, they still face many institutional barriers – which have prevented them from making a greater contribution.Research limitations/implicationsThe key limitations of the empirical investigation are the qualitative nature of survey data and the shortcomings associated with self‐declaration of entrepreneurs. It is important for future research to complement this line of research with panel data.Originality/valueThis cross‐country study extends current understanding of the determinants of SME growth in various stages of transition economies based on a unique data set. It also provides some implications for policymakers as well as entrepreneurs/managers for improving the growth of SMEs.