The Dynamic Role of Small Firms: Evidence from the U.S.

This paper provides a conceptual and empirical account of the dynamic role of SMEs in the U.S. economy. Evidence is provided to show that SMEs are important sources of employment growth and innovation. For example, the net employment gain during 1990–95 is shown to be greater among smaller firms than among larger firms. Furthermore, while large firms often produce a larger number of patents per firm, the patenting rate for small firms is typically higher than that for large firms when measured on a per-employee basis. It is noted that public policy is shifting away from traditional measures which were based on a static conception of industrial organization and thus emphasized anti-trust, regulation and public ownership solutions, towards measures which are geared towards supporting the dynamic role of SMEs. These measures focus on providing an enabling environment for enterprise start-ups, job creation, knowledge spillovers and technological change.