The Role Of Small And Medium Scale Enterprises In Economic Development

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The Role of Small and Medium Scale Enterprises in Economic Development





Research Aim and Objectives5

Research Questions5

Research Significance6


Defining SMEs7

Economic Development8

Entrepreneurship and Economic Development8

Schumpeter's Theory of Economic Development11


Research Design13

Research Philosophy and Approach14

Data Collection Method and Process15

Research Instrument16

Sampling Method17


Ethical Concerns18




Nowadays, as the influence of globalisation increases, enterprises belonging to developing countries face many hurdles in improving the institutional and human capital capacities in order to seek maximum benefit from investment and trade opportunities. Although government is responsible for creating policies in the area of trade and investment, it is the firms that actually do the investment and trading. Thus, SMEs play a veryimportant role in the growth of any developing country (Baumol, Litan, and Schramm, 2007, p. 102 ). SMEs are a major source of employment and significantly contribute to the domestic and export earnings. In addition, SMEs are also a very important instrument to reduce poverty in a country.

The increasing uncertainty in the world economy has created challenges for countries in adopting strategies that can help them achieve economic growth and development. Increase in marketing integration and the development of new technologies have led to new approaches to businesses that are less traditional in nature. One of these new approaches is the increasing significance of small and medium sized enterprises that create economic growth by creation of new firms (Kreft and Sobel, 2005, p. 34). Establishment of new businesses creates self employment and contribute to employment opportunities for others. This also results in increase in wealth, higher per capital income and also improve market competition as the business of new firms grows (Fritsch, 2004; Henderson, 2006). With the formation of new SMEs and the growth of existing SMEs, these enterprises contribute to the welfare of the society by creating new jobs for people and generating income because of the multiplier effects (Robinson, 2004, p. 23).

Entrepreneurs who establish SMEs create wealth not just for themselves, they also create it for other by bringing innovative products and ideas in the market and them commercializing those innovative products and ideas to create new wealth. Many researchers, professionals and scholars believe that SMEs are critical in maintaining the health of the economy and creating businesses in low-income areas. Moreover, they are important factor in economic development (Acs, 2006; Lichtenstein and Lyons, 2001). Minniti (1999) stated that entrepreneurs work as catalyst towards economic development. They establish a network of innovation which leads to generation of innovative ideas, which is followed by formation of new markets (p. 36).

Schumpeter (1934) states that for entrepreneurs who remain persistent in order to develop new technologies and products and become successful in it are responsible for the success of the market. Moreover, these entrepreneurs also achieve lower production costs because of the use of technology and as the increase in demand for their products. Schumpeter (1934) also describes five scenarios where innovation increases economic growth and economic development (p. 34). The first scenario is when a new good is introduced ...
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