Theories of Change 2022 Update: High-Growth Small and Medium Enterprise Development

Small and medium enterprises (SMEs) are popular targets of donor assistance; they form the majority of the business base and are significant drivers of both gross domestic product (GDP) and employment in many developing countries. In 2017, the former USAID Bureau for Economic Growth, Education and Environment (E3) Office of Trade and Regulatory Reform (TRR) Trade and Competitiveness Activity (TCA) reviewed the latest research and interviewed SME development experts to articulate popular theories of change (ToCs) and to present available evidence supporting them with the overall objective to help USAID design activities that will best stimulate SME growth in profit and/or employment. In 2022, the USAID Center for Economics and Market Development (EMD) requested an update of the evidence to the existing ToCs and to cover additional lines of inquiry, namely discussions on the most effective ways to target recipient SMEs in developing economies, and evidence or existing gaps of interventions to support specific demographics, like women and youth, and the recovery during the COVID-19 pandemic. This analysis also provides an updated account of the debates, critiques, and demographic and contextual factors of each ToC, gaps in the evidence, and implications for project design.