The Role of the Micro, Small, and Medium Enterprise Sector in Poverty Alleviation Efforts: An Analysis of Economic Value Transmission Mechanisms and Determining Factors

Abstract

This study examines the role of micro, small, and medium enterprises (MSMEs) in poverty alleviation through a qualitative literature review. It focuses on two key aspects: the mechanisms of economic value creation in the MSME sector and the factors that differentiate successful MSMEs from those that remain at subsistence level. The findings show that value creation depends on several factors, including position in supply chains, scale of operations, product differentiation, social capital, adaptive capacity, technology access, and power relations that influence value capture. Meanwhile, the success of MSMEs in improving owners’ welfare is shaped by internal factors such as absorptive capacity, personal characteristics, asset ownership, and diversification and external factors, including social networks, inclusive finance, market access, supportive policies, technology and information access, spatial conditions, and environmental sustainability. The study concludes that MSMEs can effectively reduce poverty only when supported by an integrated development approach that strengthens both enterprise capabilities and the broader ecosystem through coordinated policies, capacity building, and improved market access.