Is SME performance enhanced by preferential government policies? Evidence from the small-scale reservation industry policy in Korea

‘Small-scale reservation industry policies’, which aim to promote the growth of small and medium-size enterprises (SMEs) over that of large firms in the reserved industry, are implemented in many countries. However, disagreement remains over the effectiveness of the policy, and previous studies were only interested in the macroeconomic effects of these policies, with less focus on SME performance. Using a difference-in-differences approach in the context of the SME-friendly policy in Korea, this study finds that the policy fosters sales growth and profitability at SMEs, but the intervention is insufficient to facilitate SMEs’ R&D efforts at indigenous growth. In doing so, we advance understanding of ‘SME-preferential policies’ from the perspective of reducing the resource gap between large firms and SMEs.