Small Businesses and its impact on the Economy

Esraa Ashraf Introduction: It is no secret that money has been hard to come by these past few years but now that the economy is ...


Esraa Ashraf

Introduction: It is no secret that money has been hard to come by these past few years but now that the economy is in a rapid accretion many Entrepreneurs are quite hopeful about the future. Before the great recession many economic development strategies were based on the idea of "smokestack chasing" as called by the professionals in the economy development world which is based upon attracting a large number of new businesses and bring along job opportunities to employ members. After the great recession a lot of people formed their own small businesses to compensate for their loss hence the appearance of the term "microeconomic".

Nowadays small businesses has the leading role in local economic development across the nation, while small businesses may not generate as much money as large corporations but they are critical for the strength of local economics.

Microeconomic and its advantages: As defined by Wikipedia is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. This mainly involves small businesses.

Microeconomics can benefit business owners as well as economy; many small businesses can be started at a low cost and on a part-time basis. One study showed that small, local businesses are better for a local economy than the introduction of new chain stores. By opening up new national level chain stores, the profits of locally owned businesses greatly decrease and many businesses end up failing and having to close. When one store closes, people lose their jobs.

"Mittelstand" is a German term referring to small and medium-sized businesses that make up most of the German economy; almost 99% of the German economy is made up of "mittelstand" which proves that small businesses have a huge impact on economy because Germany is one of the leading industrial and exporting countries in Europe and the whole world.

 Germany's business landscape showing that over 99%
 of German firms are Mittelstand firms

We can summarise the advantages of small businesses on local economy in three main points:
  • Local Employment and Contributions: Since 1995, small businesses have generated 64 percent of new jobs, and paid 44 percent of the total United States private payroll, according to the SBA.
  • Adaptability to Changing Climates: As the main point of Microeconomics is to analyze the market mechanisms and how prices vary as a result of a balance between product availability (supply) and the desires of purchasing (demand).
  • Economic Growth: Small businesses contribute to local economies by providing employment opportunities to people this also leads to less revenue than larger corporations.

Role of Government in Promoting Small Business:
  • Research: researches ought to be made to develop new technologies that will benefit industry such as transportation and energy to make it easier for businesses to achieve maximum benefits.
  • Loans: since Businesses create jobs and pay taxes, Governments should try to help people to start their Businesses by providing loan guarantees to small business and encourage local banks to work with starting Businesses.
  • Education and Training: Governments should provide free training for students before and after graduating to prepare To ensure businesses have access to trained workers.



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London Journals Press: Small Businesses and its impact on the Economy
Small Businesses and its impact on the Economy
London Journals Press
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