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[Research Preview] Effects of Small Business Support Projects: Evidence from Korea

April 10, 2020

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By Jinkook Lee, Fellow at KDI


※ This article is part of KDI Journal of Economic Policy, February 2020

In recent decades, small business budgets have increased rapidly. An examination of the small business budget of the Ministry of SMEs and Start-ups (henceforth ‘MSS’) shows that it increased from 0.6 trillion won in 2007 to 2.1 trillion won in 2017. As a result, the proportion of small business budgets for the MMS’s total budget rose from 11% to 26%.

In addition, administrative promotion efforts by the Ministry have led to strengthened budget coordination outcomes and enforcement system, and small business policies are being used as important tools to support the government's income-driven growth strategy. Therefore, budgets and policies for small businesses are likely to expand in the future. 

This trend would have been possible because small businesses are an important part of the national economy. Small businesses form the basis of the industrial ecosystem, accounting for 84% of domestic establishments and 34% of the number of employees. Moreover, because companies usually start out as small businesses and then go through a wide range of experiences to become larger companies, the growth of small businesses is essential for enhancing the sustainability of our economy. Furthermore, small businesses provide long-term and short-term labor opportunities for job seekers, unemployed people and retirees, and these functions of economic and social safety nets reinforce the need for government support.

Despite the fact that support for small businesses has expanded, assessments of whether supporting policies are achieving their intended goals have been insufficient. This may be due to low data availability and to a situation in which performance evaluations of ministries has little to do with the effectiveness of projects carried out by the ministries. Nevertheless, as budgets are expanding, evaluating project performance outcomes and attempting to improve the efficiency of projects should not be neglected.

Based on this perception, this study investigates the Korean small business industry and presents an overview of government policy and budget trends. In addition, the paper analyzes the impact of small business projects on beneficiary growth and then proposes policy recommendations.

※ This paper is written based on Lee, Jinkook, “Performance Evaluation for Small Business Support Policies,” in Jaejoon Lee, (ed.) Improving the Performance Management System of Budgetary Programs: Focusing on Indepth Evaluation, Research Monograph, KDI, 2017 (in Korean).
 
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The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

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