Do interventions targeted at micro-entrepreneurs and small and medium-sized firms create jobs? A systematic review of the evidence for low and middle income countries

Abstract

Worldwide, 600 million jobs are needed over the next 15 years to keep employment rates at their current level. Because most employment in low and middle income countries is in micro-, small and medium-sized enterprises, governments, non-governmental organizations and donors spend on targeted programs and broader policies to enhance employment creation in these firms. But despite these efforts, not much is known about which of these interventions are really effective. This systematic review synthesizes the existing evidence on the employment impact of these programs. The results show that the effects have so far been very modest. Even if many interventions were relatively successful in boosting self-employment, expanding employment in already existing firms is generally more difficult but eventually easier in somewhat larger firms compared to very small firms. This finding is also true in relative terms, but it is probably not fully independent from the contexts in which firms of different sizes have been observed. The effects of finance interventions have on average been weaker than the effects of entrepreneurship training or business development services. Our study also reveals that about a third of the interventions covered by this review are not primarily designed to create employment but rather strive for income stabilization and poverty reduction. A further striking finding is that the study design matters for the impacts found; randomized controlled trials find systematically smaller effects than quasi-experimental studies. A significant shortcoming of the literature is that almost nothing is known about long term effects and cost-effectiveness and many studies fail to provide a detailed analysis of why certain effects occurred or did not occur — making it hard to extrapolate lessons.