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Title: SMEs, regional economic growth and cycles in Brazil
Authors: Cravo, Tulio A.
Keywords: Firm size
Market structure
Regional economic growth
Human capital
Spatial effects
Jobs flows
Business cycles
Issue Date: 2011
Publisher: © Tulio Antonio-Cravo
Abstract: This thesis presents an examination of the importance of Small and Medium Enterprises (SMEs) for economic growth and examines how sensitive employment in SMEs is to business cycle fluctuations in Brazil. The thesis uses different empirical techniques to investigate the role of SMEs in the Brazilian regional economic growth, using a panel dataset from 1980 to 2004 for 508 Brazilian micro-regions. It first uses standard panel data estimators (OLS, LSDV, system and first differenced GMM) to analyse the (augmented) Solow growth model encompassing the importance of the relative size of the SME sector measured by the share of the SME employment in total formal employment and the level of human capital in SMEs measured by the average years of schooling of SME employees. The results show that the size of the SME sector is not significantly important for regional economic growth, but that human capital embodied in SMEs is more important in this process. Standard panel data regressions are likely to produce biased results since they ignore the potential spatial dependence. Therefore, we present an analysis of growth regressions encompassing the SME sector considering the spatial dependence through the use of spatial econometrics. The empirical results reveal strong spatial dependence in the regional economic growth process in Brazil and confirm that human capital embodied in SMEs is more important than the size of this sector to economic growth. Nevertheless, the results indicate that the presence of SMEs generates economic growth through spatial interactions, small businesses in a given region benefit from a larger SME sector in its surrounding area. Conversely, there are no human capital spillovers in the SME sector. This analysis is complemented by a panel data spatial filtering approach that suggests that the values of the conditioning variables (including SME sector variables) across regions seem to be intrinsically linked with geographical location, supporting the view that conditioning variables carry strong spatial information with them. In addition, we analyse the sensitivity of the employment series to business cycle fluctuations. We find that smaller establishments are more cyclically sensitive than larger ones in Brazil. Furthermore, the VAR impulse response analysis suggests the effect of small firms hiring cheaply from unemployment proportionally more than large ones during recessions. However, innovations in credit constraints hit small firms harder and help to explain the empirical regularity that small establishments are more cyclically sensitive.
Description: This thesis is Confidential until 15 November 2016. A Doctoral Thesis. Submitted in partial fulfillment of the requirements for the award of Doctor of Philosophy of Loughborough University.
URI: https://dspace.lboro.ac.uk/2134/9147
Appears in Collections:Closed Access PhD Theses (Economics)

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