SME Development, Inclusive Growth, and Poverty Alleviation in Bangladesh

Abstract

The massive involvement of SMEs in economic development is considered one of the important prerequisites for inclusive growth in developing countries. This paper aims to assess the performance of SMEs towards economic development in Bangladesh based on the research question of whether SMEs have a significant influence on economic growth and the alleviation of poverty. Annual time-series data from 1996 to 2017 have been used to carry out the empirical analysis. The econometric analysis has been performed employing OLS and 2SLS techniques to investigate the impact of SMEs on economic growth and poverty alleviation. The results of the empirical analyses show that there is an economic linkage between SME development, economic growth, and the incidence of poverty. Even though such empirical relationships are not found to be statistically well justified, an increase in the percentage share of SMEs expansion has a positive effect on economic growth, which in turn, can alleviate poverty in Bangladesh. The findings of the study suggest that in light of economic theory, SME development is implicitly essential for ensuring inclusive growth and consequent poverty alleviation.