Dimensions and Determinants of Growth in Micro and Small Enterprises: Empirical Evidence from Mekelle City, Ethiopia

Abstract

This paper aims to investigate the dimensions and determinants of growth in Micro and Small Enterprises (MSEs) based on a survey covering 178 randomly selected MSEs in Mekelle city, northern Ethiopia through the test of four main hypotheses and arguments of Gibrat’s law and the learning theory hypothesis. Semi-structured questionnaire and interview were used to collect data, and the binary choice model was used to identify factors that significantly affect the growth of MSEs. Employment size index is used as a proxy to measure firm growth in which about 76.4 percent of MSEs are found survival and the remaining 23.6 percent are growing type. There is also an evidence supporting the law of proportional effect could hold in the MSEs context. Moreover, the logit model result reveals that there is a significant gender difference in growth of MSEs. Furthermore, the start up capital, location and sector in which MSEs operate matter a lot for their growth. Hence, government and non-government organizations that are concerned with 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.