Economic Contribution of Small and Medium-Sized Enterprises’ Production to the Regional Economy

We highlight small and medium-sized enterprises’ production and discuss their economic contribution to the regional economy. The “Hypothetical extraction method (HEM)” is well known as a method measuring the importance of a certain sector’s economic activity on the economy. We extend this method to measure the effect of an SME by not extracting but inserting its production activity in the input-output model, which we call the “Hypothetical insertion method (HIM).” This method can be applied in two aspects: the “backward linkage effect” through the procurement of raw materials with the Leontief model and the “forward linkage effect” through the product sales channel with the Ghosh model. Citing the example of Nishio City in the Nishi-mikawa area of Aichi Prefecture, we conducted a questionnaire survey of four SMEs on their production activities, and applied the 2011 interregional IOT of Nishio City, based on the multi-municipal IOT in Chapter 6. By measuring the impacts of each SME’s production activity in the HIM, we discuss the regional contributions of its production in both aspects: the backward and forward linkage effects.