‘Double Trouble’: the Growth of Small and Medium-Sized Enterprises in Small States

In small economies, domestic market size constraints are expected to influence the economic growth process. This paper hypothesises that they will also influence the size and growth of firms in these economies. The paper accomplishes two main objectives. Firstly, it examines the nature of the firm size-firm growth relationship in Jamaica. It tests Gibrat’s Law – that there is no observed relationship between firm size and firm growth – using firm evidence for Jamaica, a small developing economy. Secondly, the paper investigates and identifies the major determinants of firm growth in Jamaica. The special characteristics of small economies – limited market size, prevalence of small firms and high propensity to export – suggest that the firm growth process may be influenced by factors other than firm size. The main findings from quantitative analyses of firm level data, gathered through firm questionnaires, are that sectoral classification is the main determinant of firm growth in the case of Jamaica. Financial services firms are found to grow faster than firms in the manufacturing, retail and distribution sectors. Further, small firms in Jamaica grow faster than their larger counterparts, hence a negative relationship is observed between firm size and firm growth.