Small and medium enterprises, economic development and regional convergence in Europe

Federal Ministry for Foreign Affairs

The objective of this project is to analyse the linkage between small and medium enterprises and regional growth as well as to determine the factors stimulating their birth and attraction. Regarding this main objective, the Action concentrates on the following research lines.

1. The birth of new SMEs may be conditional on specific factors related to the recipient regions such as the proximity to major economic centres, market potential size, technological capability, infrastructure, human capital as well as some other local endowments, the previous existence of a network of SMEs, the presence of a enterpreunership culture, and the role of public authorities in promoting more friendly environment for the SMEs. However, most of the lagging regions usually fail to have these attraction factors.

2. Since the analysis of factors will focus on a regional level, it is likely that across-region dependencies will appear. Among other explanations for this interdependence, it is important to point out the presence of backward and forward linkages, the diffusion of technology, the existence of a common market for final goods, and a specialised labour market. Growth in one region will not be independent of what happens in the surrounding economies, so that the theoretical framework of growth and convergence in this project should include pecuniary as well as technological spillovers. The measures of the impact of development policies devoted to promote

growth in one region, should not only be restricted to its geographical frontiers but it should also consider the global effect in linked economies.