The Effect of Government Incentives on the Performance of Micro and Small Enterprises (MSE’s) in Eastern Ethiopia: Evidence from Harar, Dire Dawa city Administration and Haramaya Town

Abstract

MSE’s are serving as a vehicle of the economic development for developing countries and the government is trying to incentivize the enterprises through different mechanisms. But, the effect of government incentives on the performance of MSE’s is not yet examined in Eastern part of Ethiopia which is the main aim of this study. In the same vein, there is no study that used both capitals, saving amount and employment together as a proxy measure of performance in the study areas. Based on the findings, enterprises who accessed credit accumulated higher capital, saved higher money, and created higher employment opportunity than enterprises who do not get credit access. MSE’s operating on government provided working-premise have lower capital and lower savings but employed higher number of employees than MSE’s who work on their own or rented working premises. Enterprises who accessed tax incentives saved higher, but less average capital and less employment compared to enterprises who have not accessed tax incentives. Furthermore, MSE’s who accessed training have had higher capital, saving and employment compared to MSE’s who have not accessed trainings provided by the government. Finally, based on the findings, necessary recommendations were forwarded for considerations.

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