Determinant Of Small And Medium Enterise Growth In Ethiopia

Abstract

Small and Medium Enterprise is the condition in which developing countries move into a pattern of substantially stronger growth which play a pivotal role in industrial development and restructuring, satisfying rising local demand for services, allowing for increased specialization and supporting larger firms with inputs and services. The aim of this study is to fit a time series model for Small and Medium Enterprise in Ethiopia and its effect on economic growth. The data used are the quarterly Time Series data in the year 2000-2021 on the variables of Small and Medium Enterprise, Consumer price index, Import, Export, and Exchange Rate. From the descriptive results, SMEG has small CV among all included variables which indicate that, there was small variation in SMEG from one year to the other year in the given period of time. On the xi other hand, IMPORT and EXPORT, has high CV this implies that EXPORT and IMPORT has high variation which fluctuate from year to year. Johansen co-integration test suggests that there was one co-integration vector, which confirms to use vector error correction model. From the VEC model, SMEG was extremely influenced by Consumer Price Index and Exchange Rate in both Short-run and Long-run. Similarly, both Import and Export were also influenced by Consumer Price Index and Exchange Rate in both short and long run. According to the result of Variance decomposition, the results of the decomposition variance, more of the variation of all variables were explained by their own effect in short-run and becomes decrease in long-run. The influence of SMEG on their effect was decreases while we move further to the long run.