Emerging Economies and Financing of SMEs

Emerging Economies and Financing of SMEs

Liang Han (Shihezi University, China & University of Reading, UK), Xin Xiang (University of Reading, UK) and Xingquan Yang (Shihezi University, China)
Copyright: © 2018 |Pages: 24
DOI: 10.4018/978-1-5225-2700-8.ch002
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Abstract

Existing evidence has shown that SMEs make great contributions to innovation, job creation and economic growth. This chapter reviews recent literature on (1) the important roles played by SMEs in emerging markets and (2) the impacts of financial development on SME finance in such markets. It also uses a unique database form World Bank Enterprise Survey (WBES) to document the financing patterns, constraints and other financial issues of SMEs in emerging markets. The descriptive statistics derived from WBES show clear variations of SME financing patterns between emerging and developed markets and shed light on the important role played by financial development in financing SMEs.
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Emerging Economies And Smes

It has been widely accepted that SMEs make a significant contribution to the socio-economic and political infrastructure in both developed and developing countries, especially in the nations in transition from planned to market-oriented economies (Hussain et al., 2012). By reviewing existing literature and analysing data from World Bank Enterprise Survey (WBES), this section documents the key characteristics of the emerging economies, SMEs, the contributions they make and the constraints they face in emerging economies.

Emerging Economies

Emerging economies are those “low-income, rapid-growth countries using economic liberalization as their primary engine of growth” (Hoskisson, Eden, Lau, & Wright, 2000, p.249) and they differ significantly from developed economies in terms of institutional framework in which businesses operate. Economically, emerging economies usually have higher GPD growth and lower GDP per capita, compared with developed economies. For example, over the last decade between 2006 and 2015 (Table 1), countries with low to middle income had an average GDP growth at 5.66% annually, higher than that of countries with high income (1.37%) and this is especially pronounced in East Asia and Pacific countries which has an average annual GDP growth rate at 8.48%. Table 1 also shows that high income countries have a much higher GDP per capita (US$40,000) than that of low income countries ($532). Due to economic globalisation, the variation in export has become narrow between emerging (low to middle income countries) and developed (high income) economies, ranging from 20% (Latin and Caribbean countries) to 34% (Middle East and North African countries).

Table 1.
10-year average key macroeconomic variables (2006-2015)
CountryExports (% GDP)GDP growth (%)GDP per capita (US$)
Low income23.07 5.61 532.25
Low & middle income28.31 5.58 3633.32
Lower middle income27.66 5.89 1636.84
Middle income28.38 5.57 3971.15
Upper middle income28.62 5.49 6535.07
High income30.37 1.37 39709.33
East Asia & Pacific (excluding high income)31.97 8.48 4346.05
Europe & Central Asia (excluding high income)31.81 3.11 7992.58
Latin America & Caribbean (excluding high income)20.46 2.97 8193.20
Middle East & North Africa (excluding high income)34.21 3.22 4009.18
Sub-Saharan Africa (excluding high income)32.60 4.81 1475.99

Source: Data are from World Bank.

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