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Foreword -- Acknowledgments -- Abstract -- Introduction -- The economic importance of SMEs: separating myth from reality -- Policy biases and market distortions -- Implications for SME development strategies -- Bisiness environment -- Financial services -- Business development services -- Subsides: market distortion or market development? -- Evaluating the success of interventions -- Conclusions -- References.

The paper examines the economic rationale for intervention in support of small and medium scale enterprises (SME), on both theoretical and empirical grounds. It argues that the justification for SME interventions lies in market, and institutional failures that bias the size distribution of firms, rather than on any inherent economic benefits provided by small firms. The role of the state is mainly to provide an enabling business environment that opens access to markets, and reduces policy-induced biases against small firms. Governments can accelerate the development of markets for financial, and non-financial services suited to SMEs by promoting innovation in products, and delivery mechanisms, and, by building institutional capacity. Improving the development impact of SME strategies will require much more attention to the monitoring, and evaluation of intervention outcomes.