Macroeconomic lockdown and SMEs: the impact of the COVID-19 pandemic in Spain

Abstract

The relative importance of small-and mediumsized enterprises (SMEs) and large firms is a recurrent topic in the small business economics literature. This paper presents a real and financial social accounting matrix (FSAM) capable of distinguishing the direct and indirect effects that are transferred from micro-, small, medium, and large firms to the rest of the economy. We use the hypothetical extraction method (HEM) to explore the sequence of reactions associated with shocks that arise from the COVID-19 lockdown. Using a structural model for the Spanish economy, we identify the role of different firm size categories in the aggregate gross domestic product (GDP). Our results allow us to reconcile the mixed narrative that accompanies the evaluation of the role played by these categories in economic activity by revealing that both SMEs and large firms are important for supporting economic activity. In particular, SMEs help explain 43% of the income and two-thirds of the unemployment decline caused by the COVID-19 pandemic. Our findings also show the importance of conditioning SME industrial policy to sectoral analysis. Plain English summary The effects of the macroeconomic lockdown and its transmission to the rest of the economy differ by firm size and across sectors. Using the Spanish context for micro-, small, medium, and large firms, we distinguish the direct and indirect effects caused by the COVID-19 pandemic. The main implications are the following: (1) Research: results emphasize that SMEs and large firms are both important to support economic activity but, in order to account for the relative effects on SMEs, it is crucial to consider the specific sector that receives the disruption. 2) Policy: SMEs are an important focus of business support policies within the EU. According to our estimations, disruptions in SMEs produce larger reductions in demand. These results could support credit policies for SMEs with a strong impact on the aggregate economy due to their greater productive and financial linkages with the domestic economy.

Sustainable Development, COVID-19 and Small Business in Greece: Small Is Not Beautiful

“…For instance, survey data from May 2020 suggest that 41% of UK SMEs had stopped operations and 35% feared they would be unable to reopen again (FSB 2020). Pedauga et al (2021) estimate an overall 43% decline in the number of SMEs operated in Spain. In a similar vein, Díez et al (2021) estimate that the proportion of insolvent small and medium-sized enterprises (i.e., SMEs with negative equity) may rise by six percentage points over 2020-2021, with lower figures in Asia and higher ones in Southern Europe.…”

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“…Specifically, since the disruption of mobility is associated with the exacerbation of socioeconomic disparities 26 , 45 , 46 , we consider income per capita, inequality in the distribution of income and population density as potential drivers of variations in mobility. Furthermore, the market structure and the sectoral composition of the local economy are considered as relevant factors that might affect the impact of restrictions, given the different requirements of each sector in terms of mobility and direct contact with customers 13 , 33 , 36 , 68 – 70 . We control for overall market structure by introducing an aggregated measure representing the concentration of revenues among sectors (Revenue Concentration) in each LLM.…”

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“…However, resilient employees are the outcome of a resilience culture. Developing a culture that Cognitive capabilities enable individuals to recognize potential agitations and respond appropriately [48]. Behavioral capabilities evaluate individuals' capacity to tolerate uncertainty and collaborate with others, especially under turbulent circumstances.…”

“…Undoubtedly, the COVID-19 pandemic depicts an external jolt of unparalleled consequence for SMBs, causing a significant decrease in their earnings and profits. Pedauga et al (2021) predict an overall 43% drop in SMBs operating in Spain [28]. Similarly, Diez et al (2021) expect that the proportion of insolvent small-and medium-sized enterprises (i.e., SMBs with negative equity) may rise by six percentage points over 2020-2021 [29].…”