Designing a country's small and medium-sized enterprise development index using firm-level data: The case of Thailand

Understanding the business environment and structural issues that limit growth is critical when designing an effective national policy framework for private sector development-especially for micro, small, and medium-sized enterprises (MSMEs). Given the limited MSME data available, this paper employs probabilistic principal component analysis to develop a new way to quantitatively assess what affects MSME development nationally, by using granular firm-level panel data for 49,565 MSMEs in Thailand as a case study. The estimation results found a potential disproportionate effect of MSME policy interventions during and after the coronavirus disease pandemic. Government assistance for MSMEs likely helped Bangkok-based firms ease the negative pandemic effects, especially in manufacturing. However, it did not help local MSMEs- regardless of sector-as their operational performance deteriorated both during and after the pandemic. This underscores the importance of using a focused approach when designing policies for MSME development to facilitate more sustainable, resilient private sector growth.