TO WHAT EXTENT DO DEMAND-RELATED DIFFICULTIES INFLUENCES THE DENSITY OF SMES. A PANEL DATA STUDY ON ROMANIAN DEVELOPMENT REGIONS

Small and medium enterprises represent the vast majority of firms and are significant contributors to the creation of jobs and added value; however, they face various challenges and are insufficiently understood and supported by authorities. In this context, we attempted to decipher which are the most significant demand-related obstacles that influence the existence of small and medium firms. Using the autoregressive distributed lag (ARDL) method on panel data on the number of firms and self-reported difficulties in the 8 development regions of Romania during 2002-2019, we intended to analyze which demand-related difficulties are the most significant factors influencing the density of firms in the long and short run. We identified apparently paradoxical relationships in the long run, in that some difficulties (competition) have an expected, unfavorable effect on density, while others (not being well-known) are associated with increases in the density of firms, but with minimal regional variation. In the short term, demand-related difficulties have a smaller impact on density on a national level and vary significantly between regions. We conclude that challenges faced by entrepreneurs tend to be similar between regions in the long run, and that following the effects of these difficulties and counteracting them through well-calibrated measures can contribute to increasing the favorable contribution of small and medium enterprises.