Micro and Small Enterprises (MSEs) in Urban Economies: A Comparative Study of Egypt and Turkey at the Province Level

This paper examines how businesses operating in areas with differing rates of urbanization differ from each other with regard to firm characteristics such as firm size and the sector of economic activity. A sample of 4,136 MSE’s in Egypt and another of 4,776 MSE’s in Turkey are used in the analysis. Empirical findings show that manufacturing is more concentrated in provinces where the rate of urbanization is at a medium level, and that trade is a less likely outcome than other sectorsو the higher the level of urbanization. Other key findings: the level of urbanization does not have an effect on firm size in Turkey, but has a significant effect on firm size in Egypt, such that firm size tends to increase with urbanization; business dependence (i.e. income from MSE is the only source of income) tends to decrease with urbanization in Turkey and Egypt alike The results of the study may shed light on the natures of policies recommended to promote MSEs in densely populated areas with large numbers of potential workers. Two policy recommendations are: 1) any assistance programs must realize that entrepreneurs are heterogeneous groups, with different needs and aspiration, requiring different levels of capital and skills. 2) Because of their micro size, most government regulations fail to reach the MSEs. As they grow in size, they become targets for tax collections and other regulations. Therefore, there is a disincentive to expand beyond a certain limit. Policies that encourage expansion and growth with tax breaks or credits will definitely support the growth of the MSEs.  

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