Growth Determinants of Micro and Small Enterprises: Evidence from Northern Ethiopia

Abstract

This study aims to investigate the growth determinants of MSEs based on a survey covering 178 randomly selected MSEs from Mekelle city, Tigray regional state of Ethiopia through the test of four main hypotheses that are formulated concerning the role of gender of owner, initial investment on the firm, location and sector in which the firm operates as a main determinants of growth of an enterprise. Semi-structured questionnaire and interview were used to collect data, and the binary choice model which is logistic regression was used to identify factors that significantly affect the growth of MSEs using change in employment size since startup as a measure of firm growth in which about 76.4% of MSEs are found survival and the remaining 23.6% are growing. The binary choice logit model result shows that there is a significant gender difference on the growth of MSEs with male owner growing faster than those owned by female. In addition, the initial investment on the firm, the location and the sector in which the MSEs operates matter a lot for the growth of these enterprises. Hence, government and non government organizations that are concerned with unemployment reduction and poverty alleviation through the promotion and development of MSEs need to take these factors in to account to accomplish better result and increase the potential contribution of MSEs to the economic growth of the country.

Key words: Determinants, Employment, Growth, Micro and Small Enterprises (MSEs), Binary Choice Model, Survival, Tigray, Ethiopia.