Preprints are manuscripts made publicly available before they have been submitted for formal peer review and publication. They might contain new research findings or data. Preprints can be a draft or final version of an author's research but must not have been accepted for publication at the time of submission.
This paper examines the relationship between the Small and Medium Enterprise
(SME) sector and economic growth for an annual panel of Brazilian states for the
period 1985-2004. We investigate the importance of the relative size of the SME
sector measured by the share of the SME employment in total formal employment
and the level of human capital in SMEs measured by the average years of schooling
of SME employees. The empirical results indicate that the relative importance of
SMEs is negatively correlated with economic growth, a result that is consistent with
previous studies examining developing countries. In addition, our results also show
that human capital embodied in SMEs may be more important for economic growth
than the relative size of the SME sector.