Entrepreneurship and SME Growth : Evidence from Advanced and Laggard Transition Economies

This paper examines the impact of firms' technological capability and other firm as well as 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). Technological capability is the overarching concept indicating the ability of firms to use new processes, produce new products, develop new organisational structures conducive to growth, and engage in networking resulting in external economies. It embodies the Schumpeterian entrepreneurship or, in modern SME parlance, technological and organisational flexibility. In addition to technological capability, SME growth depends on a number of other factors too - some external to the firm and some internal. We use 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. We find that the 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 environmental barriers affecting the two groups are somewhat different. We also find that despite the growing importance of SMEs in all transition economies, they still face many environmental barriers - which have prevented them from making larger contributions