The Trend and Impact of Small and Medium Enterprises on the Economic growth of Sri Lanka

Even though SMEs play important role in both developed and newly industrialized countries, there is insignificant impact of SMEs on the Sri Lankan economy. The prime intension of this study is to find out the association between economic growth and SMEs in Sri Lanka. Furthermore, this study analyzes the trend of small and medium enterprises in employment generation and value added. The secondary data have been employed. Headcount index and SMEs' employment data have been interpolated because of non-availability of some data. The simple multiple regression model was employed to analyze the data. Heteroskedasticity and serial correlation problems were detected by using Eviews option. The finding clearly shows that there is positive relationship between economic growth and SMEs but, impact of SMEs on economic growth is not significant in Sri. Lanka. Even though the co-efficient of SMEs is 0.02 indicating that there is positive relationship between economic growth and SMEs, the impact of SMEs on economic growth is statistically insignificant. Another finding is that there is vast number of industrial establishments of SMEs in total establishments which do not significantly contribute to the employment generation and value added in Sri Lanka. Therefore, active private public participation (PPP) is needed to accelerate the growth and improvement of SMEs and thereby, its contribution to the economy can be enhanced. Thus, author suggests that public private participation in regard to SMEs is an effective remedial measure to promote SMEs and enhance their contribution to the national economic development.