Small and medium enterprises led-growth in two Adriatic countries: Granger causality approach

Sergej Gričar, Violeta Šugar and Štefan Bojnec

Economic Research-Ekonomska Istraživanja, 2019, vol. 32, issue 1, 2161-2179

Abstract: This paper investigates causal relationships between gross domestic product (GDP) and the number of small and medium sized enterprises (SMEs) controlled for unemployment rates (UNR) within Slovenia and Croatia. Macro-economic time series data on GDP, SMEs and UNR are analysed in a unit root framework and applied regression analysis. These processes are known as the Johansen co-integration test and Granger-Causality-test. The results show that UNR, GDP and SMEs did not have causal relationships in Croatia between January 2008 and December 2013. UNR and SMEs have a bidirectional relationship in Slovenia with a greater number of SMEs per capita than in Croatia. During their economic recovery period between January 2014 and December 2017, Slovenia and Croatia have experienced the causal unidirectional relation from SMEs to GDP as a positive signal under seen to policy makers on usefulness of investment in SMEs during economic prosperity. The results of a vector autoregressive model suggest a 1% change in the number of SMEs in Croatia decreases GDP in the time of crisis by almost 1.8%. For Slovenia, there is no statistically significant cointegration vector pertained to SMEs-led growth. Finally, the unidirectional causality relation from SMEs to UNR is statistically significant for Slovenia.

Date: 2019
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DOI: 10.1080/1331677X.2019.1645711

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