Designing a Country’s Small and Medium-Sized Enterprise Development Index Using Firm-Level Data: The Case of Thailand

Understanding the business environment and structural issues that limit growth is critical when designing an effective national policy framework for private sector development—especially for micro, small, and medium-sized enterprises (MSMEs). Given the limited MSME data available, this paper employs probabilistic principal component analysis to develop a new way to quantitatively assess what affects MSME development nationally, by using granular firm-level panel data for 49,565 MSMEs in Thailand as a case study. The estimation results found a potential disproportionate effect of MSME policy interventions during and after the coronavirus disease pandemic. Government assistance for MSMEs likely helped Bangkok-based firms ease the negative pandemic effects, especially in manufacturing. However, it did not help local MSMEs— regardless of sector—as their operational performance deteriorated both during and after the pandemic. This underscores the importance of using a focused approach when designing policies for MSME development to facilitate more sustainable, resilient private sector growth.