The Major Bottlenecks of Micro and Small Scale Enterprises' Growth in Ethiopia: An Econometric Analysis

Abstract

Development of Micro and Small enterprises (MSEs) is one mechanism for alleviating unemployment, especially for women. Ethiopia has developed policy as part of the Growth Transformation and Plan (GTP) to develop MSEs to generate employment at the initial stage and transform the enterprises into medium and large enterprises in the long run. However, contrary to this objective, the growth of these enterprises has been very slow by every standard. This study evaluates the factors behind the slow growth of the enterprises by estimating the enterprise growth model captured by employment growth over the span of the period that the firm has operated. We find that women owners, in particular, face more severe credit, market and working premises constraints. We also find that while enterprise growth is inversely related to initial size, financial literacy and desirable managerial qualities of owners and managers positively contribute to enterprise growth.