Small and Medium Enterprises Across the Globe

Abstract: This paper analyzes the relationship between the relative size of the Small and Medium Enterprise (SME) Sector and the business environment in 76 countries. The paper first describes a new and unique cross-country database that presents consistent and comparable information on the contribution of the SME sector to total employment in manufacturing and GDP across different countries. We then show that the share of formal SMEs in manufacturing increases as countries grow richer, while the informal sector loses importance. We also find that several dimensions of the business environment, such as lower costs of entry and better credit information sharing are associated with a larger size of the SME sector.