# **Evaluating SME Support Programs in Chile Using Panel Firm Data**

## **I.  Introduction**

Many governments provide subsidized business development services (BDS) and finance to promote productivity improvements and exports, create jobs and improve competitiveness among their small and medium enterprises (SMEs). These interventions are often justified on the grounds that SMEs face diseconomies of scale, imperfect information about markets, production methods and new technology, and limited access to finance as compared to their larger counterparts. Questions arise not only about whether these assertions are warranted, but also about the effectiveness of the SME support programs designed to address these market imperfections and constraints. The questions are not surprising given the paucity of impact evaluations of such support programs, especially in developing countries. What little rigorous evidence exists provides a decidedly mixed picture on the effectiveness of most SME programs in improving firm-level productivity, expanding markets and creating jobs.

This paper evaluates SME support programs in Chile using a long panel of firm-level data for two groups of firms – a treatment group that participated in SME programs and a control group of firms that did not. In 2004, a random sample of over 600 establishments from six manufacturing sectors provided information about their participation in different support programs and the year of that participation, ranging from the early 1990s up to 2004. The survey elicited information on 7 specific programs providing technical assistance, cluster or network formation, innovation and technology transfer and finance plus 2 open-end “other program” categories. This firm survey was linked to an unbalanced panel of establishments from the annual industrial survey (ENIA) covering the period between 1992 and 2006, providing a wealth of detailed and comparable time series data on establishment characteristics, inputs and outputs, sales, exports, employment, and wages and compensation.

These unique panel data provide an unprecedented opportunity to address several issues that have plagued impact evaluations of SME programs in most countries and in Chile as well. First, the availability of multiple years of information on treated establishments, both before and after program participation, allows us to estimate the impacts of support programs free from selection biases arising from differences between the treatment and control groups in observable attributes and in unobserved heterogeneity. Second, unlike most evaluation studies that track participants for only a year or two after program completion, in our data some treatment firms are observed for as long as 10 years after program participation. Many impacts are only realized over time, which might explain why many impact evaluation studies (including those in Chile) find short-term gains in intermediate outcomes such as training or adoption of new technology and business practices but only mixed evidence of longer-term improvements in sales, productivity or employment growth. Finally, the program participation questions in the firm survey allow us to identify a control group of firms that have never participated in any programs.

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