Evaluating Different Types of Enterprise Support Programs Using Panel Firm Data: Evidence from the Mexican Manufacturing Sector

In most countries, small and medium-sized enterprises (SMEs) make up the vast majority of firms, account for a substantial share of gross domestic product, and involve the bulk of the workforce. However, SMEs often lag behind larger firms in many performance dimensions. This lag is widely believed to result from constraints that SMEs face, including decreased access to finance, weak managerial and workforce skills, an inability to exploit scale economies in production, and imperfect information about market opportunities, new technologies, and methods of organization.

In Mexico, microenterprises and SMEs make up 99 percent of firms, employ about 64 percent of the workforce, and account for more than 40 percent of GDP. Given the importance of SMEs in the economy, governments in Mexico over the past twenty years have established a wide variety of SME support programs. How effective these SME programs have been in achieving their objectives is unclear. In Mexico, impact evaluations of SME programs are rare. Most evaluations are qualitative in nature and narrow in scope, usually measuring beneficiary satisfaction with either support services or program coverage.

This paper evaluates SME support programs in Mexico using a panel of firm-level data for two groups of firms—a treatment group that participated in SME programs and a control group that did not. The panel data have been created by linking SME program participation information to a large panel of annual industrial surveys (1994–2005) maintained by Mexico’s National Institute of Statistics and Geography.

The panel data provide an opportunity to address several issues that have plagued impact evaluations of SME programs in most countries, including Mexico. First, asking program participation questions in the firm survey allows the identification of firms that have never participated in any program and firms that have participated in different types of SME support programs such as business development services (BDS) or programs to support research and development (R&D).¹ Second, the availability of multiple years of information on the characteristics and performance of participant firms—both before and after program participation—allows us to estimate the impacts of support programs that address selection biases arising from differences between the treatment and control groups in observable attributes and in unobserved heterogeneity. Our findings suggest that program participation in certain types of BDS and R&D support programs is associated with a higher value added per worker and increases in employment and exports. The positive impact associated with firm participation is strongest and most robust in the R&D support programs, which include the Sector Promotions Program (PROSEC) of the Ministry of Economy and the Fiscal Incentives and Technological Innovation (FITI) program of the National Science and Technology Council. These programs showed positive and statistically significant impacts on firm performance, ranging from increases of 9–13 percent on sales—and, in the case of PROSEC, increases of 12 percent in value added per worker and 10 percent in production per worker. Both R&D programs increased exports between 16 and 18 percent. The results also indicate that some outcomes, such as employment and value added per worker, showed positive effects only after the third or fourth year of program participation, although the effect increases as time goes on. As for BDS programs, we estimate positive effects on sales, fixed assets, and productivity measures from the National Environmental Audit Program (PNAA). We were unable to identify positive effects of this program on other outcomes or positive effects of the Comprehensive Quality and Modernization Program for Training the Industrial Workforce (CIMO-PAC).

An Overview of SME Programs in Mexico

The Mexican federal government supports the development and competitiveness of Mexican firms by improving the overall business environment and through interventions to support individual firms or groups of firms, especially SMEs. Between 2001 and 2006, the Mexican government invested the equivalent of US$13 billion in approximately 3.7 million SMEs (World Bank 2010).

Several agencies in Mexico provide SME support. The Ministry of Economy is first with regard to coverage...