Efficiency and Social Capital in Micro, Small and Medium Enterprises: the Case of Ethiopia

The long-term survival of micro,small and medium enterprises in developed and developing countries remains an intensely debated issue in the literature. Marxists, as well as Schumpeterian and neoclassical economists,argue with persuasive force that small enterprises are destined to disappear as economies reach more advanced stages of development and global integration. The fundamental reason for this claim relates to the perceived operational inefficiency of MSMEs and their inherent lack of economies of scale. Despite such theoretical assertions, MSMEs in Ethiopia have maintained an impressive degree of resilience and survival amidst highly adverse macroeconomic circumstances and poor institutional support. The fact that MSMEs have managed to survive in spite of numerous challenges to growth offers a compelling rationale for isolating & explaining the critical determinants of resilience & expansion of MSMEs in Ethiopia. This study extends the existing literature on how social networks enhance the performance and sustainability of small enterprises. More specifically,the study isolates & investigates the mechanisms through which social capital helps with the growth & survival of MSMEs.