Small and Medium Scale Enterprises: Their Role in Economic Growth of Nepal

Abstract

Small and medium scale enterprises (SMEs) have historically played an important role in contributing to economic growth and development. Naturally, all businesses start as small businesses or even start out of small businesses initiated by individuals. It is imperative to give high priority to Nepalese labor, skill and raw material based domestic investments to promote national level industries for achieving economic growth in the course of SMEs. This study has used Johansen Cointegration, Vector Error Estimates (VAR) and Granger Causality test to investigate relative changes in the position of the Nepalese SMEs and investment to the real GDP since 1989 and 2018 based on secondary data regarding regression analysis. It has examined the dynamic relationship among the total SMEs and investment with real GDP of Nepal and found to be significant and positive relationship in between investment and real GDP of Nepal while insignificant and inverse relationship in between total SMEs and real GDP of Nepal. It implies that real GDP was seemed to be mostly influenced by investment rather than number of SMEs. However, it was and still is contributing significant role in economic growth in Nepal.