# **1.- INTRODUCTION**

Microenterprises and SMEs make up 99 percent of enterprises in Mexico, employ about 64 percent of the workforce, and account for over 40 percent of GDP. Given the importance of SME in the economy, governments in Mexico over the last 20 years have put in place a wide variety of SME support programs. An inventory of programs—an important contribution of this study, as such information is not generally available—identified 151 SME programs administered by different government agencies.

How effective these SME programs have been in achieving their objectives is unclear. In Mexico, impact evaluations of SME programs are rare—most are qualitative in nature and narrow in scope, either measuring beneficiary satisfaction with support services or easily quantified program coverage indicators. None take into account the complicated biases from unobserved firm heterogeneity and self-selection that plague efforts to measure the true impacts of program participation.

This paper uses econometric techniques to estimate the net impacts of SME program participation on outcomes. Techniques used include regressions models with program participation indicators and controls for firm characteristics, propensity score matching techniques, and a generalization of difference-in-differences (DID) methods using pre- and post-program panel data adapted to the nature of our panel data. The panel data is created by linking SME program participation information (which identifies the treatment and control groups) to a large panel of annual industrial surveys (1994-2005) maintained by Mexico’s National Statistics Office ( _Instituto Nacional de Estadística y Geografía—_ INEGI). Impacts are estimated at the agency level (groups of programs run by a given agency or ministry) and in selected cases by program, when data allowed for estimations to be carried out.

The paper finds that program participation in certain types of SME programs is associated with higher value added, sales, export, and employment. The positive impact associated with firm participation in SME programs is strongest in the programs of the Ministry of Economy (ME) and the National Science and Technology Council ( _Consejo Nacional de Ciencia y Tecnología_ —CONACyT). Our panel data allows us to identify the timing of the effects of program participation on outcomes. We found positive and significant impact for firms participating in SME programs that range from 5 percent in value added to 6 percent in employment, among other outcomes. These results remain robust after trimming the 5 percent of the treatment group for each outcome variable. Some of these positive effects materialize after the third or fourth year after exposure into the program. We found that the programs in the ME and CONACyT have the largest impact on outcomes. CONACyT’s fiscal support and technical innovation program had a positive and significant effect, with an estimated increase in value added of 14 percent and an increase in employment of 10 percent. The ME’s sectoral promotion program and the Environmental Audit Program also showed positive and statistically significant impacts on firm performance.

The paper is organized as follows. Section 2 describes the many SME policies and programs in Mexico. The work presented in this section is unique, since information on SME program budget and beneficiaries is not easily available. Section 3 reviews existing evaluations in Mexico. The evaluations reviewed here are not exhaustive, but they do provide an overview 2