Toward Dynamic-Based Classification of SMEs

Abstract

Small and Medium-size Enterprises have been recognized worldwide for their contribution to the economy, employment and new job creation. Given the importance of small businesses to the economy, policymakers have put efforts in helping to boost small businesses by allocating incentives and support programs to those small businesses with high growth potential; rather than to the small business sector as a whole. However, common size-based classifications of small businesses capture the attributes of the business at a certain point in time, and thus, cannot identify those firms that are likely to grow. This paper offers a dynamic classification to help in identifying pro-growth small and medium-size enterprises, based on past and forward-looking indicators. Such dynamic classification could better serve public policy makers in a more precise allocation of scarce resources toward those small businesses with the highest likelihood to contribute to economic stability and growth.