Understanding the Economic Linkages among Small and Medium Enterprises, Economic Growth, and Employees in Malaysia

Abstract

This paper investigates the linkages among economic growth, small and medium enterprises (SMEs) and employees in Malaysia. It uses the total number of SME employees as a third variable to be associated with economic and SME growth using a panel dataset covering the period from 1998 to 2017. There are five main economic sectors in Malaysia: agriculture, construction, mining, manufacturing and services. The aim of the paper is to provide a better understanding of the relationship between SMEs, economic growth and the number of employees in the different sectors. Our findings indicate various causal relationships among the three variables in different sectors. The results of the study found that Malaysian economic growth contributed to the growth of the SME sector. In contrast, it showed that the growth of the SME sector only contributed to the growth of the manufacturing industry. The information gained will be useful for policymakers and help the government to plan for the future of the country by focusing on worthwhile activity. Contribution/Originality: The paper's primary contribution is finding that SME is a key driver in contributed to the economic growth only in manufacturing activities. Otherwise in other activities, we found that the economic growth was the factor that stimulated the SMEs and at the same time increased the total number of employees.

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“…Again, the research also concluded that firm size was significantly correlated with access to credit. This collaborates the work of Nguyen & Ramachandran, (2006); Musamali and Tarus, (2013) reported earlier in the previous subsections.…”

“…Logistic regression and ordinary least squares were used to analyse and estimate the data, respectively. The results showed that firm size is positively associated with accessibility to bank loans Musamali and Tarus (2013). conducted empirical evidence to analyse the effect of firm characteristics on SME firms on access to credit in Kenya using primary data collected from 103 SME businesses using questionnaires.…”

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“…Thus, the collateral requirement can also help to weed out rogues from honest borrowers, leaving only those bona-fide applicants who fully intend to repay the loan. Martin and Daniel (2013) found out that firm age plays a critical role in firms' access to finance. More specifically, firms that are older were found to have more access to finance.…”

“…Petersen and Rajan (1994) in their estimation argued that as firms grow, they develop a greater ability to enlarge the circle of banks from which they can borrow. Martin and Daniel (2013) suggested that the reason for the effect of the size of the business on the ability to access finance is that larger firms are likely to have collaterals that act as a security in securing finances. Abor (2007) in Ghana examined the effect of industry classification on the capital structure of Ghanaian SMEs.…”

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