Menu

ADIGRAT UNIVERSITY 11057869303 COLLAGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ECONOMICS DETERMINANTS OF THE GROWTH AND THE PERFORMANCE OF MICRO AND SMALL ENTERPRISES TRANSITION

March 27, 2019 0 Comment

ADIGRAT UNIVERSITY
11057869303
COLLAGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
DETERMINANTS OF THE GROWTH AND THE PERFORMANCE OF MICRO AND SMALL ENTERPRISES TRANSITION: THE CASE OF ADIGRAT CITY, ETHIOPIA
A Thesis proposal Submitted in partial fulfillment of the requirement for the Master of Science degree (MSc) in Economics (Development Economics)
Principal Advisor: Gabriel.TBy Girmay W/giorgis ID No. 027/09
Jun10, 2018
Adigrat University

TABLE OF CONTENTS
1. INTRODUCTION …………………………………………………………………………….3
1.1. Background of the study …………………………………………………………………….3
1.2. Statement of the problem………………………………………………………. ………..…5
1.3. Objectives of the study ………………………………………………………………………6
1.4. Research questions ………………………………………………………………………….6
1.5. Significance of the study ……………………………………………………………………7
1.6. Scope and limitation of the study ……………………………………………………………7
2. Review of Literature …………………………………………………………………………..7
2.1. Concepts and definitions of micro and small enterprises ………………………………..….7
2.2 Role of Micro and Small Enterprise (Mses)………………………………………………….8
2.3 Micro and Small Enterprises (Mses) and Their Growth…………………………………..…8
2.4 Conditions for Micro and Small Enterprises (Mses) Growth………………………………10
2.5 Measuring Micro and Small Enterprise (Mses) Growth…………………………………….10
2.6 Ethiopian Micro and Small Enterprise (Mses) Strategy……………………………………..11
2.7 Ethiopia’s Micro and Small Enterprise (Mses) Promotion Policy………………………….12
2.8 Challenges of Micro and Small Enterprise (Mses) Development in Ethiopia……..……….13
2.9 Empirical Evidence …………………………………………………………………………14
3. Research Methodology………………………………………………………………………..15
3.1 Description of the study area………………………………………………………………..15
3.2 sampling method and sample frame…………………………………………………………15
3.3 Type and methods of data collection………………………………………………………..16
3.4 Methods of Data Analysis…………………………………………………………………..16
3.5 Econometric Model Specification…………………………………………………………..16
3.6 Model Specification…………………………………………………………………………17
3.7 Data processing and Analysis………………………………………………………………17
3.7.1 Data processing……………………………………………………………………………17
3.7.2 Data Analysis……………………………………………………………………………..17
4. Activities and Budget Schedule………………………………………………………………18
4.1 Activities Schedule………………………………………………………………………….18
4.2 Budget Schedule…………………………………………………………………………….19
Reference………………………………………………………………………………………..20

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

1. INTRODUCTION
1. 1. Background of the Study
The role of Micro and Small Enterprises (MSEs) in socio-economic development as a means for generating sustainable employment and income is increasingly recognized and gives the largest source of employment and income generation activity, particularly for the urban population (Wasihun ; Paul, 2010) as cited on Fekadu Goshu.
In developing countries, Micro and Small Enterprises (MSEs) by virtue of their size, location, capital investment and their capacity to generate greater employment have proved their paramount effect on rapid economic growth (MTI, 1997) as cited on Habtamu Tefera, Aregawi Gebremichael and Nigus Abera.
The sector is also known in bringing structural economic transformation by effectively using the skill and the talent of people without requesting high-level training, much capital and sophisticated technology. As a result the MSE sector is described as the natural home of entrepreneurship since it provides an ideal environment that enable entrepreneurs to exercise their talents to fill and attain their goals.
Due to these MSEs are recognized as a real engine of economic growth and technological progress (Carrier, 1994; Mulharn, 1995). Moreover, MSEs exert a very strong influence on the economic growth of all countries over the world (Drillhon and Estime, 1993). These makes MSEs a major area of concern for government and non-government organizations with an objective of unemployment and income inequality reduction, income generation, import substitution, innovation, poverty alleviation etc as cited in Habtamu Tefera†, Aregawi Gebremichael and Nigus Abera.
The MSE sector is seen as an essential catalyst for job creation, unemployment reduction and social progress at large since it takes the lion share of fast growing labor force in the world particularly 48% in North Africa, 51% in Latin America, 65% in Asia, and 72% in Sub-Saharan African Countries (ILO, 2002) as cited in Habtamu Tefera†, Aregawi Gebremichael and Nigus Abera.
.
According to CSA (2004), as cited in Netsaalem Bahiru, almost 50% of all new jobs created in Ethiopia are attributable to small businesses and enterprises, and roughly, women owned 49% of new businesses that were operational between 1991 and 2003 and According to Aregash (2005, as cited in Eshetu and Zeleke, 2008), 98% of business firms in Ethiopia are micro and smallenterprises, out of which small enterprises represent 65% of all businesses..
As a result, MSE are flourishing across the country and the MSE sector becomes the second largest employment generating sector for the poor households following the agriculture sector (Mohammed, Habtamu, ; Dessalegn, 2014).
A National survey conducted by Central Statistics Agency (CSA) in 2006 indicates that more than 1.3 million people in the country are engaged in MSEs sector. But a large number of MSEs are unable to grow (expand in terms of employment) and remain to be survival (non-growing) type which cannot provide employment. Moreover, out of 1000 MSEs in this country(Gebreeyesus, 2009) and particularly in capital city Addis Ababa majority (75.6%) of the MSEs are unable to grow at all since start up and only 21.9% of the MSEs were added workers (Wasihun and Paul, 2010).
Although the desire to promote micro and small enterprises has been clearly expressed in theNational MSE Development Strategy that was issued by the Ministry of Trade and Industryin 1997, there are no co-ordinate efforts among stakeholders in supporting the growth of theMSE sector. The National and Regional MSE Development Strategies clearly state thatFeMSEDA and the ReMSEDAs are respectively the federal and regional bodies responsiblefor the coordination of efforts for the implementation of the strategies. In practice however,the various government institutions, private sector institutions and NGOs, who are active inthe promotion of MSEs, operate independently of each other and, therefore, without acommon vision (Zewde, 2002), as cited by Netsaalem Bahiru and with a major objective of creating long-term employment and providing basis for medium and large scale enterprises there by to facilitate economic growth and transition.

However, this study needs to be supported by detailed researches at every level i.e., country, regional and woreda or firm level so as to be easily realized. While a significant amount of research has been done on the determinants of growth in large firms, much less is known with respect to MSEs (Raymond, Bergeron, ; Blili, 2005), specifically in developing countries like Ethiopia, given that MSEs survival, growth and prosperity are more often than not and potentially subjected to different constraints and contingencies related to entrepreneurial, firm, external and inter-firm factors. Hence, most MSEs remain the same in size of employment since start up as compared to larger enterprises since the factors that influence the growth of MSEs are many, complex and erratic.
Due to that in Adigrat city, there is a MSE through Kebelles centralized official agency to support and organized beneficiaries and around 10941 enterprises are organized.

Therefore, this study aims to investigate the dimensions and determinant factors of MSEs growth transition in Adigrat city, Tigray regional state of Ethiopia. In which major emphasis will give to examine the growth and transition status of MSEs, to identify the key factors affecting the g growth and transition of MSEs and to critically analyze the causes and consequences.

1.2. Statement of the Problem
Despite MSEs are recognized as vehicles for economic growth and reduce poverty and unemployment (Zemenu ; Mohammed, 2014), most of them are facing critical constraints both at the operation and start up level. Some of these constraints include lack of access to finance, lack of access to working premise, lack of entrepreneurial training and management skills, lack of marketing information and the like (Brhane, 2014).
Shortage and size of credit, shortage of working premise and size of sales spaces and stringent licensing requirements are some of the other key constraints to Ethiopian MSE (Assefa, Zerfu, ; Tekle, 2014). And as Aregawi and Tilaye (2014), MUDC (2013), and Habtamu et al (2013) found out the facilitation and adjustment of the startup and working capital sources, working premises, raw material supply, managerial and technical skill training, market- enterprise linkage creation and management support for MSE’s are shouldered on government officials. Thus, the responsibility requires tremendous efforts and integration between enterprise owners and government officials’ at all hierarchical levels. Although the government has been taking series of polices and strategies, most interventionist policies are blanket recommendations regarding MSEs and hence are inappropriate and impractical for some situations.
Lack of working premise for MSE is unquestionably a serious problem. The issue of acquisition and transaction cost has become very prohibitive to the emergence of new enterprises and to the growth and development of existing ones (MTI, 2012) as cited in Fikadu Goshu Fufa. Furthermore, lack of skilled and experienced labor which leads to problems in production due to the unfamiliarity of workers with rapid changing demand, and lack of coordination of production process are critical problem that MSEs are facing since they cannot afford to employ specialists in the fields of finance, administration, and technically knowledgeable experts (Richard, 2000; Drucker, 1984). Lack of entrepreneurial skills that nurture the growth and development of MSEs and marketing their products effectively through acquiring information on marketing opportunities is the major bottlenecks that MSE entrepreneurs face all over the country

Thus this study aims at assessing determinants factors of MSE growth and transition in the study area. In particular, the study will initiated to address the following basic research questions:
I. How do MSEs perform in terms of creating jobs and generating adequate income for their members?
II. What are the major challenges confronting with MSEs’ operations for transition in Adigrat-City?
1.3. Objectives of the study Area
1.3.1 General objective:
The general objective of this study is to determine the growth and transition of small and micro enterprises in Adigrat city.

1.3.2 The Specific Objectives:
1.To test the effect of attending technical and business management training on growth of MSEs in adigrat city Administration
2. To test the effect of working in cooperatives on growth of MSEs in Adigrat city
3. To examine the general characteristics of Micro and Small Scale Enterprises in the study area.

4. To analyze the growth and transition determinants of Micro and Small Scale Enterprises in the study area.

1.4. Research question of the study
What are the determinants in micro and small enterprises for growth and transition?
How to analyze the characteristics of MSE?
What contributes to the city for economic growth?
1.5. Significance of the study area
There are many MSEs in Adigrat. The potential to create employment and to generate income makes them crucial economic instrument. Hence, the result of the research will provide relevant information to policy makers and local development planners working on the development of conducive environment for MSEs. Furthermore, the study will provide additional information about the role of MSEs in growth and transition in Adigrat city for interested researchers, prospective entrepreneurs, and business consulting firms.

1.6. Scope and Limitation of the Study
The study covers manufacturing industry, service and construction sectors of MSEs in Adigrat. In this research the samples was taken from MSEs with registered capital less than 500,000 birr excluding consultancy firms. The other types of sectors, other than the three sectors mentioned above, are beyond the scope of the study because of time and finance constraints. Secondly, in some of the enterprises the owners (managers) was not found. In this case data was collected through the acting managers and finance heads. Next respondents also show a tendency of underestimating their income and capital; this is because they fear tax and other related problems. Finally, although data are lacking on micro and small enterprises in the study area, this did not affect the result of the research.

2. Review of related Literature
2.1 Definition of Micro and Small Enterprises (MSEs)
In the past the definition of Micro and Small Enterprises was based on paid up capital only. According to Arega Seyoum*, Muhammed Aragie* & Daniel Tadesse article review an enterprise is categorized as micro if it’s paid up capital is less than or equal to Birr 20,000. Similarly, an enterprise is considered small when its paid up capital is less than or equal to Birr 500,000.However, this does not provide information on the size of jobs or number of employees in the MSE. It also did not tell the size of the total asset for the MSE and did not differentiate between manufacturing (industry) and services.
Current definition considers human capital and asset as the main measures of micro and small enterprise to addresses the limitations of the old definition.

Table 1: The New MSE Definition (2011)
Type of the Enterprise Sector Human Power Total Asset
Micro enterprise Industry ; 5 ; 100,000(Birr)
Micro enterprise Service ;5 ;50,000(Birr)
Small enterprise Industry 6-30 ; 1.5 million (Birr)
Small enterprise Service 6-30 ;500,000(Birr)
Source: FeMSEDA, 2011
2.2 Role of Micro and Small Enterprise (MSEs)
The small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty (Wolfenson, 2001) as cited in Arega Seyoum*, Muhammed Aragie*, Daniel Tadesse. Small-Scale businesses are driving force for economic growth, job creation, and poverty reduction in developing countries. Further, small scale business has been recognized as a feeder service to large-scale industries (Fabayo, 2009) abbib.

In light of this, Micro and Small Enterprise Development Program in Ethiopia has been given due attention by government since 2004/2005. Until 2004/2005, the national strategy was implemented by Federal MSEs Development Agency organized only at national level. Because of this, it was very difficult to make the strategy practical specially in delivering business development service for MSE operators. Thus, by considering the critical role of the sector and the challenges faced by MSE operators since 2004/2005 the government of Ethiopia decided to establish MSEs coordinating body at the regional level.

2.3 Micro and Small Enterprises (MSEs) and Their Growth
What is growth in MSE? What is the yardstick to say one firm is growing while the other is stagnant? In this study, firm growth for MSEs is defined as an increase in the number of employees over time. MSE owners are typically able to remember their number of employees over time, even if they fail to maintain reliable written records. In addition, using the number of employees helps to avoid the need to deflate or otherwise adjust currency figures, which is necessary when using revenue and other monetary metrics. Employing other measures of growth may influence findings (Mead and Liedholm, 1998) as cited in Arega Seyoum*, Muhammed Aragie*, Daniel Tadesse..To date no theory specific to MSEs growth in developing countries has been stated. Traditional neoclassical economics hypothesize that workers are added until the value of the marginal product of the last worker is equal to the wage paid to that worker. This implies that firm growth will occur as a reaction to changes in technology, the wage rate, or the price of the product. As a result, if one is interested in why small firms in developing countries grow, this simple theory suggests that one’s attention must focus on the factors that have an impact on supply and demand for the product produced by the MSE.

The ‘stochastic’ models extended this simple static model by consideration is given to the evolution of firms over time. These models also introduced firm-specific costs. In this framework, firms draw each year’s growth rate from a distribution. ‘Lucky’ firms repeatedly draw high rates and grow over time. These models were based on Gibrat’s Law, the stylized fact that firm growth and firm size are independent. However, researchers began to find fault with the assumptions of the stochastic models, and empirical work demonstrated that Gibrat’s Law does not hold.

This stochastic model was superseded in the theoretical literature by Jovanovic’s (1982) ‘learning model’. In this framework, efficient firms (that is, firms with able managers) grow over time, expanding each period when their managers observe that their guesses about their managerial efficiency turn out to have understated their true efficiency. Jovanovic’s model, in its simplest form, predicts that the annual growth rate of a firm will be a function of the accuracy of the manager’s predictions regarding their ability, as well as the price of the product.

The learning model also has implications about the relationships between growth rates and firm size and age. On average older firms grow more slowly than younger ones. With respect to firm size, bigger firms grow more slowly controlling for firm age. Bigger firm have small values of the cost parameter (that is, they are more efficient). Such firms have less and less room for further increases, given that the information distribution has a lower bound.

The Jovanovic model has been criticized for the immutability of the efficiency parameter. In that model, managers are born with an efficiency level, and while they learn what that level is over time, they cannot alter it. Pakes and Ericson (1987) extended the basic model to allow this parameter to be changed through human capital formation. Those firms with managers possessing greater stocks of human capital should be more efficient, and therefore should grow relatively faster.

Another aspect of the literature involves economies of scope at the firm level. Teece (1980), building on the work of Penrose (1959) and Williamson (1975), theorizes that when the market for proprietary know-how does not function efficiently, or when an input is specialized and indivisible, a firm may find it more sensible to expand (diversify) than to sell the know-how or input to another firm producing a different product. This approach emphasizes the internal dynamics of the administrative structure of each firm. While this aspect seems likely to offer some useful insights into the process of firm growth, such an analysis is beyond the scope of this paper.

2.4 Conditions for Micro and Small Enterprises (MSEs) Growth
Why do some MSEs expand rapidly, while others stagnate?
What factors account for the wide variation observed in MSE growth course?
Prior study on factors that affect MSE growth tells, range of factors play an important role in shaping the growth performance of a particular MSE, by influencing the opportunities available to owners and employees and their capabilities to take advantage of such opportunities. These factors can be summarized into four broad categories: contextuafactors related to the business environment, social or relational factors, firm characteristics, and individual entrepreneur characteristics.

2.5 Measuring Micro and Small Enterprise (MSEs) Growth
There is a little agreement in the existing literature on how to measure growth of firms. Thus most previous studies have used a variety of different measures such as total assets, sales, employment size, profit, capital, and others (Berkhamet al., 1996; Davidsson and Wiklund, 2000; Holmes & Zimmer, 1994). Moreover, growth has been measured in absolute or relative terms. For this study, the parameter used to measure the growth of MSEs was employment size.

The growth rate of the MSEs is computed following Evans (1987) model i.e.

gr=lnSt0-lnStEntage=y*Where;
lnSt0=Natural logarithm of initial employment size,
lnSt= Natural logarithm of current employment size
Entage= Age of MSEs
gr= Growth rate of the enterprises
2.6 Ethiopian Micro and Small Enterprise (MSEs) Strategy
In contrast to many MSE related studies, the working definition of MSE in Ethiopia is based on capital. According to the Micro and Small Enterprises Development Strategy;
Micro Enterprises: are those business enterprises with a paid-up capital of not exceeding Birr 20,000 and excluding high tech consultancy firms and other high-tech establishments; (2) Small Enterprises: are those business enterprises with a paid-up capital above Birr 20,000 and not exceeding Birr 500,000 and excluding high tech consultancy firms and other high-tech establishments (FDRE Ministry of Trade and Industry 2007: 5). Hence, in this case the definition is based on capital and the level of technical and technological capacities adopted. The information on MSE in Addis Ababa indicated that from all the total licensed enterprises, 75.4% are micro enterprises, 20.9% are small enterprises and the remaining 3.7% are medium and large enterprises (Addis ReMSEDA 2009a).

During the socialist regime (1974-1991) due to extensive nationalization of private sector, many of the former private sector firms ceased to exist. But after 1991, the current government adopted several policies and regulations aimed at supporting the informal sector. MSE serves as sources for sustainable job opportunities not only for developing countries like Ethiopia, but also for developed countries like USA. Thus they are given prior attention as they are important and serve for sustainable source of job opportunities to our country. As a result many important overall policy and institutional reforms have been undertaken including: safety net, decentralization, market economy, agricultural development led industrialization (ADLI), etc. Moreover, a number of sector specific policy reforms and restructuring of regulatory institutions may have contributed to the process of creation of micro and small enterprises. One of the frameworks was related to issuance of the National Micro and Small Enterprises Development Strategy in 1997 and the issuance of Proclamation No. 33/98 to provide for the establishment of the Federal Micro and Small Enterprises Development Agency (Addis ReMSEDA 2009a).

In the same way to promote MSE, the Addis Ababa Trade and Industry Development Bureau has two branches, one is for MSE which focuses on the development of enterprises and the other one is for trade and industry. Micro and Small Enterprises are one of the focal points on the development agenda of the municipal government of Addis Ababa. The MSE branch has three main departments namely; MSE Development, Marketing Research and Promotion Department, and the Cooperatives Promotion and Controlling Department. Similarly, the structure of the MSE is extended to all sub cities in Addis Ababa. There are MSE teams and teams for the promotion of cooperatives in each sub-city while at the ‘kebele’ level it is handled by the MSE office under the ‘kebele’ chief executive (Addis ReMSEDA 2009b).
The MSE branch has been organizing people with different skills into individual business and cooperatives by creating job opportunities and providing various supportive services in coordination with NGOs to create a favorable environment for the growth of the sector (AddisReMSEDA, 2009b).

Organizing and licensing was done by the cooperative office and a working premise was provided by the sub-city administration, and other concerned housing and land agencies. Space was provided depending on the size of the available land by assigning four square meters per person for a monthly fee of Birr 1.00/m2 for the food processing sector and monthly fee Birr 2.00/m2 for the metal and woodworks sectors (Addis ReMSEDA 2009a).

In November 1997, the Ethiopian Ministry of Trade and Industry published the “Micro and Small Enterprises Development Strategy”, which enlightens a systematic approach to alleviate the problems and promote the growth of MSEs (MOTI, 1997). Elements of the program include measures with regard to creating an enabling legal framework and streamlining regulatory conditions that hinder the establishment of new and expansion of existing MSEs. In addition, specific support programs also include measures related to providing working premises, facilitating access to finance, provision of incentives, promotion of partnerships, business skill development training, access to appropriate technology, access to market, access to information and advice, infrastructure and institutional strengthening of the private sector associations and chambers of commerce.

2.7 Ethiopia’s Micro and Small Enterprise (MSEs) Promotion Policy
The role of Micro and Small Enterprises (MSEs) is indispensable in poverty reduction through employment generation. Cognizant of this, a national MSEs Development Strategy was formulated in 1997. Ethiopia’s MSE Policy envisages not only reducing poverty in urban areas but also nurturing entrepreneurship and laying the foundation for industrial development. The strategy was revised in 2010/11 with renewed interests and more ambitious targets on employment and number of entrepreneurs and transition to medium size level (Addis ReMSEDA 2009a).
MSE development, being one of the key focus areas of the country’s development strategy, receives massive support from the government in the form of access to finance, market, technology, training and working space. The government strongly believes that MSEs are the right solution to reduce urban unemployment and hence reduce poverty. This ambition is reflected in the GTP. For instance, it plans to create three million new jobs in the MSE sector in the five years growth and transformation period. Therefore, MSE promotion and support is the vital strategy to fulfill this national plan of employment creation in the short-run and achieving industrialization in the long-run. Ethiopia adopts a layered policy support in which MSEs are categorized into start-ups, growing-middle and maturity. Start-up stage enterprises refers to those enterprises found at their establishment stage and comprises a group or individual aspiring entrepreneurs that seek various supports to make their enterprise operational. The basic challenges at this stage include lack of initial and working capital, poor knowledge of business management and entrepreneurship and lack of knowhow about the different government policies and directives related to the sector. In order to mitigate these challenges, FEMSEDA has designed a strategy that focuses on facilitating access to initial capital, supporting MSEs in formalization and legalization process and provision of training on business management, entrepreneurship and production technique.

Growing stage enterprises refers to those enterprises that are competent in the market in terms of price and quality and successfully utilize the various government support packages and are profitable in their business. However, enterprises at this stage also suffer from different challenges like financial constraint, lack of appropriate technology and technical skill, absence of sufficient working and sales premises and rent seeking behavior. To alleviate these specific challenges, FEMSEDA has formed a national strategy that focuses on facilitation of financial support and skill and technological development program. On the other hand, enterprises are considered to have reached the maturity stage when they are fully profitable and engaged in further expansion and investments in the sector. At this stage FEMSEDA has a strategy that aims to strengthen enterprises in terms of productivity and product quality. Moreover, at this stage, knowledge of international standards and better production technology are disseminated to enterprises.

2.8 Challenges of Micro and Small Enterprise (MSEs) Development in Ethiopia
In Ethiopia, MSEs are confronted with various problems, which are of structural, institutional and economic in nature. Lack of capital, working premises, marketing problems, shortage of supply of raw materials and lack of qualified human resources are the most pressing problems facing MSEs. Although the economic policy of Ethiopia has attached due emphasis to entrepreneurship values and appreciation of the sector’s contribution to the economy, there are still constraints related to infrastructure, credit, working premises, extension service, consultancy, information provision, prototype development, imbalance preferential treatment and many others, which therefore need proper attention and improvement. It is in this context that the Ethiopian Micro and Small Enterprises Development Strategy was conceived and developed (Ministry of Trade and Industry, 1997).

2.9 Empirical Evidence
Empirical evidence from the U.S. (Evans, 1987; Dunne et al., 1989) and from the developing world (Chuta, 1989) has repeatedly supported the inverse relationship between firm growth and both firm age and size that is hypothesized by Jovanovic’s theory.

In addition to firm age and size, demand and supply factors, such as sector and location, enter into the growth decisions of individual firms, since they influence the product and input prices. The learning model assumes all firms produce a homogeneous product. Firms in different sectors face different product demands, as well as being different on the cost side (e.g., inputs are more or less costly to obtain; competition is more or less stiff). Therefore, if we intend to consider a group of heterogeneous MSEs, we must allow for differences in sector. Sectorial differences in growth rates have been shown by Phillips and Kirchoff (1988) for small firms in the U.S. and by Chuta (1989) for enterprises in Nigeria. With respect to location, a firm’s proximity to demand sources and to concentrations of competition must influence its profitability. In addition, the work of Piore and Sabel (1984), Sengenberger(1991), Pyke (1990) and others highlights the importance of agglomeration externalities in firm growth. These externalities come from many small firms locating near each other and building reliable supplier and buyer relationships within the group. This literature suggests that firms grouped together in urban areas may be able to specialize in particular products and produce at lower cost than would otherwise be the case. Such firms, then, would be more likely to be in a position to expand. Finally, the location of the premises may imply differential costs regarding rent payments. For example, home-based enterprises (HBEs) may pay less in rental costs than a shop in the commercial district.

Moreover, the performance of a firm (including its growth) likely depends in part on the level of human capital embodied in its proprietor. For example, Bates (1990) finds that the educational level of the proprietor is positively and significantly related to small firm longevity (and thus, perhaps, firm growth). This finding echoes that of Douglass (1976). Evans and Leighton (1989) find that education, experience, and previous self-employment are important determinants of the probability of starting a small enterprise. Cortes et al (1987), argue that while older proprietors are likely to be more experienced than younger ones, they also may be less inclined or less able to make their firms grow. For metal working firms in Colombia, proprietor age and firm growth rates are inversely related. Other proprietor characteristics might also influence enterprise growth. Evans and Leighton (1989) provide evidence that the marital status of the proprietor is a significant determinant of the likelihood of starting a small business. A final example involves proprietor gender. Since, traditionally, female-generated funds are used to cover the family’s basic needs female proprietors may avoid taking the risks involved with firm expansion.

Analysis paper made in June 2011 for the success factors of MSEs in Addis Ababa shows there is no significant difference on the performance of MSEs operating in Addis Ababa in relation to the age difference of the principal owners, and in relation to education the research paper shows those MSE operators who have education of 10+3 and above shows higher performance and growth compared with the others. (Tiruneh, 2011) In Ethiopia, MSEs Sector is the second largest employment-generating sector following agriculture (CSA, 2005). According to CSA (2005) the sectors contributes 3.4% of GDP, 33% of the industrial sector’s contribution and 52% of the manufacturing sector’s contribution to the GDP of the year 2001.

In spite of the enormous importance of the micro and small enterprise (MSE) sector to the national economy with regards to job creation and the alleviation of abject poverty in Ethiopia, the sector is facing financial challenges, which impeded its role in the economy. These challenges are lack of access to credit, insufficient loan size, time delay and collateral (Gebrehiwot and Wolday, 2006).

3. Research Methodology
3.1 Description of the study area
Adigrat city is located in eastern part of the Tigray Regional state and it is the Zonal town of eastern Zone. It is located at a distance of 989 km from Addis Ababa on the main road that leads to northern region of Ethiopia. Over the past few years the population of Adigrat has been growing rapidly. The population growth reaches around 95,538 which, putting the town among other fast growing cities in the country. The town provides township plan prepared by the national urban planning institution. The master plan covers different aspects such as development plans road network plans, utility service plans, drainage and land use plan etc.

In case of micro and small enterprise in Adigrat city creates around 10,941 enterprises totally in the sectors of construction, manufacturing, urban agriculture, service and trade and beside irregular enterprises have 2014.
3.2 sampling method and sample frame
Multistage sampling method; first select the study area city purposely, next second stage will use to identify 6 kebelles from the city stratified random sampling /purposely. The 3rd stage will be select from each 6 kebelles by random sampling generally, and I can use probability and non-probability sampling technique. The sample size for each kebelle and adding the total sample of the study area determined using the sample size determination formula of Solvin (2001).
Slovin’s sampling formula n=N1+Ne2=109411+10941×0.052 =382
Where: N= population
n= sample size
e=error term
3.3 Types and methods of data collection
Both quantitative and qualitative primary data regarding the determinants of small and micro enterprises of growth and transition will be used. The data will be collected from randomly selected kebeelles primary (structured questionnaires for HHs, interviews, FGD, key informants) and from secondary data through annual reports from official office and published articles will be used.

3.4 Methods of Data Analysis
The collected data will be coded, labeled, entered in to statistical software and econometric software such as SPPS and STATA, an econometric model will be applied to estimate, analyze and interpret the explanatory variables and to imply the possible recommendations. Different descriptive statistics will also apply to examine the economic characteristics of the respondents such as mean, median, variance and standard deviation of the data.

3.5 Econometric Model Specification
The econometric analysis tool that is binary logistic regression for MSE growth and OLS model for MSE transition will used to identify the determinants of MSE growth and transition. Qualitative data obtained from MSEs officials and experts was analyzed through narration and interpretation qualitatively. To determine the growth and transition status of MSEs, information has to be collected and an appropriate measure of aggregate growth has to be used. As argued by Baum and others growth measure all depends upon the ease of availability of the data and good judgment of the researcher, as a result, from the available alternatives of aggregate growth measures (capital, sales, profit, employment and etc). This study used employment size and capital as an objective measure of MSEs growth. Accordingly, MSEs growth and transition rate will computed by taking the natural logarithm of change in employment size /capital over the life of the firm following Evans model. Taking the calculated growth rate, the MSEs are classified into two broad categories i.e., growing (if growth rate > 0) and non-growing (if growth rate ? 0) following Cheng and represented in the model by 1 for the growing and 0 for survival MSEs. The binary logistic regression model is selected due to the nature of dependent variable, if the dependent variable is categorical variable with only two categories (growing and non-growing valued as 1 & 0 respectively), binary logistic (logit) regression is appropriate.

3.6 Model Specification
In this study MSEs are assumed to be either growing or non-growing. Hence the binary choice logistic regression model that assumes dichotomous dependent variable which takes either 1 or 0 value depending on Y* is used, this is
Specified as……….

y=1, &y*>00, &y*?0
In a qualitative response model, the probability that Y=1 is given by the sign of the latent variable that is the probability that the latent variable becomes positive.

Pr(y*>0) =pr ob (?’x+?;0)=pr ob?;-?’x=pr ob?<?’x=F(?’x)The final employed model becomes:
Pr(y=?+?1age+skl?2edu+?3exp+?4mot+?5tra+?6loc+?7src+?8iem+?9mem+?10bpl+?11sec+?12acf+?13act+?13bds+?14acw+?15acp+?16aml+?17msp+?18(asn)Definition of variables:
– Dependent variable is growth with transition of SME that is continuous income which measured by ols or logit.

– Independent variables: age=age acf=access finance
edu=education act=access transport
exp=experience bds=business development plan
mot- motivationacw=access water
skl=skillacp=access power
tra=trainingaml=access market linkage
loc=locationmsp=material support from NGO
src=starter capital asn=access social network
iem=initial employment
mem= members
bpl=business plan
sec=sector
Data processing and Analysis
The collected data will processed in stata, econometric and spss instruments for better correlation.

4. Activities and Budget Schedule
4.1 Activities Schedule
Table1. Activities schedule
S/n Activities Time of implementation Remark
May Jun Jul Aug Sep Oct 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 Reviewing related literatures                                          
2 Proposal writing 3 Submission of 1st draft proposal 4 Submission of
revised proposal 5 Sub mission of
proposal                                          
6 Questionnaires development                                          
7 Hiring of data
enumerators                                          
8 Training of
enumerators                                          
9 Pretesting of
questionnaires                                          
10 Revising of
questionnaire                                          
11 Focus group
discussion                                          
12 Data collection
through
questioner                                          
13 Data processing, grouping and
entry process                                          
14 Data analysis                                          
15 final paper sub mission(draft                                          
16 Final paper
submission                                          
17 Reporting of
findings                                          
18 Submit final
report 4.2 Budget Schedule
Budget for this study will use for stationary, premium for enumerators and researcher, printing, laptop and other expenses, totally 36804.35 birr.
S/n Components and activities Unit Amount Unit price Total price(birr) Remark
1 A4 (80gram ) paper Ream 5 110 550  
2 Lined paper Ream 1 110 110  
3 Pen No 10 3 30  
4 Fixer No 7 20 140  
5 Ruler No 5 10 50  
6 Eraser No 6 5 30  
7 Proposal first draft print Page 65 1.5 97.5  
8 Proposal final print Page 65 1.5 97.5  
9 Pretest questionnaire print Page 387 1.5 580.5  
10 Final questionnaire print Page 3483 1.5 5224.5  
11 Printing final draft paper Page 110 5 550  
12 Printing final paper Page 110 5 550  
13 One day training for enumerators No 5 120 600  
14 Daily payments for enumerators No 15 days*5 120 9000  
15 Daily allowance for researcher No 30 120 3600  
16 Internet charges Per hr110 10 1100  
17 Transportation to kebeles  6 5 30 For trip
18 Daily allowance for researcher  Days 22 120 2640  
19 Language translation Birr 1 3000 3000   Sub total       33458.5  
  Contingency 10%     3345.85  
  Grand total       36804.35  
Reference
Mekonnen Drbie (MBA)1 Tilaye Kassahun (PhD)Vol.5 No. 2 December 2013 journal on Deterrents to the Success of Micro and Small Enterprises
Arega Seyoum*, Muhammed Aragie*, Daniel Tadesse Growth of Micro and Small Enterprises in Addis Ababa City Administration: A Study on Selected Micro and Small Enterprise.

Habtamu Tefera†, Aregawi Gebremichael? and Nigus Abera on Growth Determinants of Micro and Small Enterprises: Evidence from Northern Ethiopia
Netsaalem Bahiru Factors Affecting the Performance of Micro And small Enterprises April 2011.

Solomon Tarfasa1, Tadele Ferede2 (PhD), Shiferaw Kebede3, Daniel Behailu4 (PhD) April 2016 Determinants of growth of micro and small enterprises (MSEs):
Government Of The Federal Democratic Republic Of Ethiopia Ministry of Urban Development & Housing Micro And Small Enterprise Development Policy & Strategy second Edition March 2012, Edit April 2016, Addis Ababa.

Fikadu Goshu Fufa (MBA, MSc) Vol.7, No.13, 2015: Determinants of Micro and Small Enterprises Growth in Ethiopia
Micro and Small Enterprises Development Agency(2010), The Impact of MSEs in Addis Ababa; A Diagnostic Study Addis Ababa City Administration
ILO, (2002) PromotionofCooperativesRecommendation,2002(No.193) Also Available online:http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:R193

x

Hi!
I'm Marlon!

Would you like to get a custom essay? How about receiving a customized one?

Check it out