SMEs and Its Constraints : Empirical Study on Central Asia and Eastern Europe

This paper aims to examine small and medium-sized firms in transitional countries, which consist of countries in three areas, (Central Asia, Central Europe, and the Balkans), and to show how various constraints affect these firms' performance.This empirical analysis includes an investigation into the main determinants of the growth of firms in these areas.The empirical model specifies that these small and medium-sized firms' growth is determined not only by features such as size or age, but also by other specific factors such as an index of financial constraint and the local tax rate.The data are taken from the Business Environment and Enterprise Performance Survey, which was conducted by the World Bank and which covered 12 countries (Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, and Slovakia) in the period from 2002 to 2013.A dummy is used to investigate whether the small and medium-sized firms in these countries face tax and financial constraints.The sample is divided into three geographical areas, (Central Asia, Central Europe, and the Balkans) to examine the characteristics of each area.The empirical findings show that, although corporate income tax is as major barrier for these firms, financial constraints do not affect their performance.The regression results by area show that the tax barrier is particularly severe in Central Asian countries.