SME Policy in the Western Balkan: Classifying policy approaches and the factors explaining policy approach variation

Claudia Charlotte Kempe

Student thesis: Master thesis


This thesis makes an economic analysis of the small and medium-sized enterprise (SME) policies of six Western Balkan (WB) transition economies and examines the role of economic development in informing their SME policy approaches. Thus, by examining the cases of Albania, Bosnia, Kosovo, Macedonia, Montenegro, and Serbia, this thesis seeks to address the research question: What are the SME policy approaches adopted by the WB countries and what explains the variation in these approaches? The thesis has two parts to address the double research question. The first part pertains to collecting SME policy data for evaluating and classifying the SME policy approaches of the WB countries. The second parts consists of collecting WB economic development data while using descriptive statistics to examine the dynamics between economic development levels and SME policy approaches.Analytical generalisations made from the analysis reveal that a variety of SME policy approaches are viable options for economies in transition, as the study shows that the six WB countries choose three of the four possible SME policy approaches: Bosnia and Kosovo adopt a ‘limiting’ SME policy approach; Albania and Montenegro adopt a ‘competing’ approach; and Serbia and Macedonia adopt a ‘nurturing’ SME policy approach. Moreover, the findings reveal that economic development level explains, to some extent, the variation in SME policy approaches in transition economies: the WB countries with higher economic development levels (Albania, Serbia, Macedonia, and Montenegro) adopt more demanding ‘competing’ and ‘nurturing’ SME policy approaches, while the less developed countries (Kosovo and Bosnia) adopt the least demanding ‘limiting’ approach. However, it is found that a slight improvement in a couple economic development indicators is sufficient to move a transition economy from a ‘limiting’ SME policy approach to a ‘competing’ approach. The research finds, however, that economic development level does not explain the variation in SME policy approaches among more developed transition economies, as the variables do not fully explain how more developed WB countries choose between ‘nurturing’ and ‘competing’ approaches. The findings of this paper lead to five further analytical generalisations and theoretical conclusions. First, the paper verifies, to an extent, literature that claims a positive relationship between economic development indicators and SME policy approach and, second, finds that this relationship holds in the case of transition economies. Third, the paper finds that the more economically developed transition economies focus on reducing barriers confronting SMEs, while the less developed countries focus on providing support services. Fourth, the study establishes that the current perspectives on factors affecting SME policy are too ridged and unsuitable for the WB countries, implying that a new perspective for transition economies is necessary. Lastly, the paper interprets a new perspective on SME policy in transition economies: the SME policy development path of transition economies. The SME policy development path of transition economies addresses the gap in literature pertaining to the SME policy approaches of transition economies and the factors that explain the variation in these approaches. There are three phases to the SME policy development path of transition economies. In phase one, countries have low levels of economic development and adopt a ‘limiting’ SME policy approach. As economic development increases, a country enters phase two and begins allocating more resources to reducing barriers that hinder SME formation and growth, thereby evolving to a ‘competing’ SME policy approach. The third phase involves further economic development, which enables countries to either continue focusing on reducing barriers or increasing support services to SMEs. Choosing to focus on support services implies the evolution towards a ‘nurturing’ SME policy approach, while continuing to focus on reducing barriers implies the country retains its ‘competing’ SME policy approach. The thesis proposes that countries will choose the SME policy approach that produces a level playing field for SMEs. The SME policy development path of transition economies not only offers a new perspective to literature, but it may also lead to improvements in how the SME sector is regulated; it offers policymakers in transition economies with a better understanding of the evolution of their SME policies and indicates what SME policy decisions need to be made at certain phases of development. Six sub-questions guide the analysis of this thesis. A brief introduction introduces the research question and the motivation for the topic, while the methodology outlines the research design. The literature review summarises and evaluates existing literature, thereby addressing the first two sub-questions, how does literature classify SME approaches, and, what does literature say about factors affecting SME policy? The analytical framework presents the models used for informing the analysis, while the analysis answers sub-question three, what is the state of SME policy in WB (evaluation and classification of SME policy) and sub-question four, what are the economic development levels of the WB countries? Lastly, the discussion offers insights to the dynamics of SME policy approach and economic development indicators and addresses sub-question five, what are the implications of the findings for literature, and sub-question six, what are the policy implications of the findings?

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
Publication date2016
Number of pages101