SME Development in Indonesia: Do Economic Growth and Government Supports Matter?

19 Pages Posted: 13 Aug 2008

See all articles by Tulus Tambunan

Tulus Tambunan

Trisakti University - Faculty of Economics

Date Written: August 11, 2008


There is an ongoing debate in the literature on development of small and medium enterprises (SMEs) in less developed countries (LDCs) on two issues: the survival of SMEs in the course of economic development and the importance of government promotion programs for SME development. This research aims to examine those issues with Indonesian data. As a means to address those issues, it uses a simple regression model. It shows that both real gross domestic product (GDP) per capita and government development expenditure (in which part of it is used to finance SME development promotion programs) have positive correlations with SME share in GDP. With this finding, the research argues that SME in LDCs have a chance to survive and even to grow in the long-run for three main reasons: (a) they have a niche market for themselves; (b) these enterprises act as a 'last resort' for the poor; and (c) the production linkages between SMEs and large-enterprises (LEs) in the form of subcontracting have become increasingly important, and thus, they will grow along with the growth of LEs.

Keywords: SME, LDC, LE, government supports, Indonesia

JEL Classification: G38, L22, L25

Suggested Citation

Tambunan, Tulus, SME Development in Indonesia: Do Economic Growth and Government Supports Matter? (August 11, 2008). Available at SSRN: or

Tulus Tambunan (Contact Author)

Trisakti University - Faculty of Economics ( email )


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