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Vol. 3, No. 5, 2017

Corresponding author:
1 Department of Translation and Philology, Private Higher Educational Institution “Ivano-Frankivsk King Danylo Halytskyi University of Law”.
E-mail: lena_zl@ukr.net

DOI: http://dx.doi.org/10.30525/2256-0742/2017-3-5-151-156

EVALUATION OF SMALL BUSINESS INFLUENCE  
ON THE ECONOMIC DEVELOPMENT OF THE REGION

Olena Zvarych1
Private Higher Educational Institution “Ivano-Frankivsk King Danylo Halytskyi University of Law”, Ukraine

Abstract. The purpose of the paper is to study the role and assess the small business development influence on the 
economic development of the region. Methods. Theoretical and methodological foundations of the research draw 
up the scientists’ works on the problems of economic development of the regions. During the scientific research, a 
complex of such methods was used: generalization and scientific abstraction – in order to specify the conceptual-
categorical instrument and identify characteristics of the small business; monographic – in case of highlighting the 
scientists’ views on the investigated problems; comparative analysis – when identifying features of small business 
influence on the economic development of the region; mathematical modelling in economics  – to develop the 
methodology for the evaluation of small business development influence on the economic development of the 
region. Results. Special aspects of small business functioning as a factor of the economic development of the region 
that accommodates economic growth, the improvement of the product quality and social indicators of development, 
formation of the middle class, decrease of the unemployment rate, increase of the population living standards are 
researched. The ambiguity of approaches to the small business definition is established, the characteristic feature 
of which, in most cases, is the number of employees. However, the small business is distinguished for industrial 
enterprises and service-oriented companies, based on the structure of management, and also taking into account 
the self-regulation of small enterprises or their relations to the large enterprises or industrial group of companies. 
It is established that criteria for the evaluation of the efficiency of small business enterprises can be: increase in the 
entrepreneurship development rates, minimization of material and social losses of the society, increasing the share 
of small business in GDP formation, raising the level of social protection of the employee. Method of the evaluation 
of small business development influence on the economic development of the region is proposed, which provides: 
the allocation of the priority areas of activity of small business entities that have a positive effect on the correspond 
territory; formation of the aggregate indices representing each of these areas; establishment of connection between 
the researched areas of the small business influence with the economic development of the region; building-up the 
compound integrated index based on the results of the correlation analysis parameters that have an effect on the 
economic development of regions; evaluation of the contribution extent of the small business to the economic 
development level of each region. Practical meaning. It is established that the functioning of small businesses 
significantly influences the sectoral structure of the territory and the level of the population employment, while the 
influence on the infrastructure and the ecological state of the region is not so considerable. Factors, that determine 
the efficiency level of the small business functioning and also have a significant influence on the economic 
development level of the region are singled out, namely: the number of small enterprises; products sold turnover; 
the number of employed and the proportion of employees in the small businesses. Taking into account the specifics 
of small business, its strong influence on the economic condition of the local territories is substantiated, which in 
its turn determines the necessity for conducting the complementary measurements involving a local survey of the 
statistical information, particularly in large cities, mountainous areas, zones of ecological disaster. The methodology 
for the evaluation of the small businesses functioning at the local level allows us to specify actual reasons that stem 
the tide of small business in existing locations and to formulate the measures for their elimination. Value/originality. 
On the ground of the conducted research, the conceptual principles of the small business influence assessment on 
the economic development of the region are proposed, which took the basis of the scientific research on formation 
effective model sustainable development region.

Key words: small business, economic development, region.

JEL Classification: D22, R10, O10



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1. Introduction
Small business (SB) is one of the economic 

development factors and the social welfare improvement. 
It contributes to the gross domestic product growth, 
the improvement of product quality, the formation of 
the middle class, the reduction of unemployment, etc. 
However, if in the European countries the SB provides 
up to 60% of the budget revenues, then in Ukraine this 
figure is only 0.18% (Britchenko, 2010).

As an integral sector of the market economy, the 
entrepreneurship has the pronounced regional 
orientation, because the small business enterprises plan 
their activities primarily based on the needs of the local 
markets, capacity and structure of the local demand, and 
the local authority within their power form the business 
climate. It is obvious that small business should be the 
factor of the regional level development, influence the 
economic development of the region.

Problems of the small business development in the 
economy of the regions of Ukraine are considered 
in the aspect of the small business development 
by the specifics of the cities (Babkina, 2010), the 
strategic key factors of the regional economic 
development (Verkhohliadova, Cherednichenko, 
Stenicheva 2010); adaptation of small and medium-
sized businesses to the economic management under 
the conditions of a crisis (Humanetska, 2010), 
development of small business in different forms of 
state financial support (Piskunova, 2010). Economic 
growth of the region is also investigated on the basis 
of the business activities (Kovalov, 2014). However, 
in these works, the support tools by the regional 
authorities of the small business development are 
most often studied. W hile the small businesses 
influence on the development of the region remains, 
commonly, out of attention.

Therefore, the purpose of the study is to research 
the role and assessment of the small business 
development influence on the economic development 
of the region.

2. Characteristics of the small business
The small businesses operation is usually considered 

at the regional level, since SB often use resources of 
the local market and sell their products, mainly, on 
the territory of their placement. The small business 
orientation to the local labour market closely connects 
it with the socio-economic conditions available in the 
region.

There is no official or generally accepted definition 
of SB. More or less recognized is the definition of the 
European Commission, depending on the number of 
employees, annual balance and turnover (Table 1). 
However, enterprises are not considered SB, if other 
companies, not belonging to the specified category, own 
more than 25% of the capital.

Table 1
Small business characteristics as defined  
by the European Commission

Type of 
enterprise

Number of 
employees

Annual 
turnover, 
million 
euros

Annual 
balance 

sheet, million 
euros

Very small 
business

< 10 and ≤ 2 or ≤ 2

Small business < 50 and ≤ 10 or ≤ 10

Definitions are used variously in different countries, 
but in most cases, the allocation of a particular type 
of enterprise occurs depending on the number of 
employees. As a rule, it is considered that a small 
enterprise should employ less than 50 people, although 
in some countries this figure is less. In some countries, 
the conditions are different for industrial enterprises 
and service-oriented companies; in this case, 
service enterprises tend to be smaller than industrial 
enterprises. In some countries, there is a distinction 
between autonomous Small Enterprises and those 
associated with a large enterprise or industrial group, 
or also Small Businesses are distinguished on the basis 
of the management structure (for example, the owner 
is personally engaged in the work of the firm or the 
enterprise is a family business). Finally, the statistical 
definition of a SB often differs from the definitions, 
developed for economic policy conducting; for example, 
although a company with a staff of 60 people may not 
be related to the SB for statistical purposes, it may have 
the right to participate in social SB support programs. 
The main characteristic of the Small Business is “small” 
in the sense that the enterprise does not belong to 10 
or 20 percent of the largest firms in the market or in the 
industrial sector.

In Ukrainian legislation, this issue is regulated by the 
Commercial Code of Ukraine. The subjects of the small 
business are (Commercial Code of Ukraine):
– individuals registered in the manner prescribed 
by law as sole proprietors with the average number of 
employees for the reporting period (calendar year) does 
not exceed 50 persons and the annual income from any 
activity does not overgrow the equivalent of 10 million 
euros, determined by the average annual rate of the 
National Bank of Ukraine;
– legal entities – economic agents of any organizational 
form and form of ownership, in which the average 
number of employees for the reporting period (calendar 
year) does not exceed 50 persons and the annual income 
from any activity does not overgrow the equivalent of 10 
million euros, determined by the average annual rate of 
the National Bank of Ukraine (Table 2).

Small business is a form of business organization 
that meets certain criteria. This form is legally fixed 
(Commercial Code of Ukraine), and the characteristic 
feature of the entrepreneurship is the innovative principles.



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Table 2
Small business characteristics according  
to the Commercial Code of Ukraine

Small business
Micro Small

Number of 
employees

≤ 10 persons ≤ 50 persons

Annual income ≤ 2 million euros ≤ 10 million euros

3. The methodology of evaluation  
of small business development influence  
on the economic development of the region

The main criteria of the effectiveness evaluation of the 
small business enterprises at present time are (Kovalov, 
2014):
– increasing the entrepreneurship development 
growth rate as one of the factors of the economic 
development of the region;
– minimization of material and social losses of society;
– increasing the share of small business in GDP 
formation;
– raising the level of social protection of employees, 
etc.

To provide them, we suggest using the methodology 
of the SB development influence evaluation on the 
economic development of the region (Fig. 1).

At the first stage of the given methodology, at the 
regional level, we highlight the priority areas of the 
small business entities activity, which have a positive 
effect on the relevant territory. Such approaches can 
be determined by each self-government individually 
depending on the characteristics of the territory 
development and the security level of the different 
approaches to services.

At the second stage, in order to quantify the SB 
influence on the regional development, it is necessary to 
select the whole complex of indexes that would represent 
each of these approaches. The State Statistics Service of 
Ukraine provides a number of statistical indicators that 
in one way or another characterize this phenomenon 
and can be used as resultant, or factorial features. By 
the logical analysis of the state statistics materials, 
the following relative parameters characterizing the 
development of small business in the region for each of 
the priority guidelines were selected:

1. Sectoral structure of the territory  – the 
concentration factor; the number of small businesses 
per unit employed in the SB in the region; the share of 
turnover of SB in the total turnover of enterprises of the 
region.

2. Local budget  – local budget revenues per person; 
the share of carrying-out of works/services for the 
public funds by the SB to the total quantity of such 
orders in the territories.

3. Innovative potential of the territory  – the share of 
SB that use innovations in the total number of SB.

4. The infrastructure of the territory – the share of SB 
providing services to the subjects of the territory in the 
total number of SB; the share of entrepreneurs involved 
in the construction and repair of roads and landscaping 
territory in the total number of entrepreneurs.

5. Attractiveness of the territory – the share of goods 
and services exported (imported) by the SB, in the total 
amount of foreign trade turnover of the region; the 
share of investments in the SB in the total volume of 
investments in the region.

6. Policy of the region  – the share of SB in the total 
number of enterprises taking part in the political life of 
the region; the share of public associations of SB entities 

 

• Determination of the priority guidelines of the small business influence on the 
region’s development 

• Formation of the aggregate indicators that represent each of these areas 

1 

2 

3 

• Establishment of the connection between the investigated areas of the small 
business influence and economic development of the region on the basis of the 
coefficients indicators of the pair correlation 

5 

4 
• Construction of a consolidated integral index based on the results of a correlation 
analysis of parameters that affect the economic development of regions 

• The assay of the small business contribution degree to the economic development 
level of each region 

Fig. 1. Stages of implementation of the methodology for small business development influence evaluation 
on the economic development of the region



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in the infrastructure of regional small business support.

7. Ecology of the region – the share of SB involved in 
environmental protection activities in the total number 
of enterprises. The amount of SB financing in measures 
of environmental protection.

8. Living standards of the population of the region  – 
the share of employed in SB in the total number of 
the employed population of the region; the average 
monthly salary of the SB employee in comparison with 
the average monthly wage in the region; the share of 
hired SB employees to the total number of employees 
in the region.

In order to identify the link between the investigated 
areas of influence of SB with the economic development 
of the region, it is necessary to calculate the coefficient of 
the pair correlation of indicators, which characterize the 
functioning of small business and the level of economic 
development of the region – this is the third stage of the 
methodology.

To evaluate the extent of the SB contribution to the level 
of economic development of the region, it is necessary 
to construct a consolidated integral index based on the 
results of the parameters correlation analysis, influencing 
economic development of regions (fourth stage).

The calculation of the integral indicator of the SB 
influence on the economic development of the region 
involves the implementation of the several successive 
stages:

1. Parameters normalization influencing the economic 
development of the regions to their specific average 
value:

P
x
x

ir
ir

io

= ,

where Pir  – normalization coefficient; xir  – the value 
of the і-th parameter for r-th region; xiî  – the value of 
the і-th parameter for the country as a whole.

2. Calculation of the integral index of the SB influence 
on the economic development of the region as the 
average geometric normalized parameters:

D Pr ir
i

n n

=










=
∏

1

1

,

where Dr  – an integral indicator of the influence of the 
level of SB development on the economic development 
r-th region; n – the number of normalized coefficients.

The presented integral index is a dimensionless value 
whose level is not limited by a certain interval. The 
reason for this is the calculation of the index on the basis 
of relative indicators, the value of which can many times 
exceed or be many times smaller than the value of a certain 
average level. The larger the value of the integral indicator, 
the greater the extent of the SB development influence 
level on the economic development of the region.

Thus, the SB functioning evaluation, conducted with 
the help of selective relative indicators, will characterize 
the extent of the SB contribution to the level of economic 
development for each region separately – the fifth stage.

The Empirical research base is presented by statistical 
materials of the State Statistics Service of Ukraine 
characterizing the development of small business and 
economic development of regions of Ukraine for 2010–
2016.

As a result of correlation analysis as the key indicators 
influencing the economic development of the region, for 
the calculation of the integral indicator were selected:
– the number of small enterprises per unit employed in 
SB in the region;
– the share of the products sales volume by the small 
business in the total amount of the products sold in the 
region;
– the share of the works/services execution for the 
public funds by the small business to the total number 
of such orders in the region;
– the share of the non-governmental associations of 
SB entities in the infrastructure of regional support for 
small business;
– the share of employed in SB in the total number of 
the employed population of the region;
– the share of the SB employee to the total number of 
employees of the corresponding region.

4. Applied aspects
The results of calculations of the consolidated integral 

index in the context of the regions of Ukraine for the 
period from 2010 to 2016 showed that the largest values 
of the small business development are achieved in 
Kherson, Chernivtsi regions – the value is higher on the 
average over 1,5 (Table 3). Moderate indicators of small 
business development  – from 1,0 to 1,5  – are received 
for such regions as Kirovohrad, Ivano-Frankivsk, Odesa, 
Ternopil, Chernihiv, Zhytomyr, Rivne, Khmelnytskyi, 
Mykolaiv, Sumy, Cherkasy, Volyn, Zakarpattia, 
Sevastopol city, AR of Crimea (for the period of 2010–
2013). All other regions have a low potential for small 
business development. This is due to the inadequate use 
of the small business development factors.

The obtained calculations allow us to conclude that 
the greatest influence of small business on the economic 
development of the region is observed in Rivne region 
and Sevastopol city. The weak influence of small business 
on the economic development of the region is inherent 
to Zakarpattia, Khmelnytskyi, Ternopil, Donetsk, 
Zhytomyr, and Cherkasy regions. The insignificant 
contribution of the SB to the economic development 
of the country in the whole. To determine the specific 
reasons for the existing differentiation of the indicators 
of regions of Ukraine, it is necessary to conduct a more 
in-depth study aimed at identifying the additional 
factors influencing the development of small business.

It should be noted separately that the impact of small 
business on the level of economic development of 
Ukrainian regions remains practically unchangeable. 
For the period from 2010 to 2016, the investigated 



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influence on the average in Ukraine remained on the 
same level.

5. Conclusions
Thus, during the research, it is revealed that the 

functioning of SB has a different influence on the 
economic development of the region. The small business 
has the greatest influence on the sectoral structure 
of the territory and on the employment level of the 
population, and the smallest – on the infrastructure and 
the ecological state of the region.

As factors determining the efficiency level of the 
SB operation, as well as those that have the greatest 
influence on the economic development level of the 
region, the number of small enterprises is allocated; the 
sold products turnover; the number of employed and 
the proportion of employees in SB.

It should be noted that taking into account the specifics 
of small business, the strongest influence it has on the 
economic climate of the local territories. In this regard, 
for a more in-depth study of the ties between the degree 
of the small business development and the economic 
development level of the territories, it is necessary 
to carry out the additional measurements using the 
local survey of statistical information (for example, 
separate large cities  – regional centres, mountain 
territories, zones of ecological disaster, etc.). For this, 
it is necessary to determine the specifics of the small 
businesses functioning at the local level and to develop 
appropriate methodological tools for its evaluation. The 
development of this methodology allows us to define 
specific reasons that stem the tide of small business in 
existing locations and to work out the actions for the 
resolution of the existing problems in this sphere.

Table 3
Consolidated Integrated Index of the Small Business Development Influence Assessment  
on the Economic Development of the Region

Region 2010 2011 2012 2013 2014 2015 2016
Autonomous Republic of Crimea 1,28 1,27 1,25 1,26 - - - 
Vinnytsia 0,89 0,92 0,94 0,95 1,00 0,97 1,09
Volyn* 0,96 0,99 0,96 0,98 1,08 1,07 1,05
Dnipropetrovsk* 0,96 0,96 0,95 0,92 0,65 0,69 0,72
Donetsk 0,64 0,62 0,64 0,64 0,62 0,62 0,68
Zhytomyr 1,03 1,03 1,03 1,02 1,27 1,11 1,05
Zakarpattia 1,04 1,02 1,03 1,00 1,01 1,01 1,06
Zaporizhzhia 0,76 0,78 0,77 0,77 0,64 0,65 0,64
Ivano-Frankivsk* 1,37 1,37 1,35 1,29 1,50 1,52 1,51
Kyiv 1,00 1,02 1,01 0,99 0,84 0,86 0,86
Kirovohrad 1,24 1,28 1,27 1,24 1,41 1,50 1,56
Luhansk 0,91 0,90 0,92 0,93 0,90 1,02 1,02
Lviv* 1,02 1,00 1,00 1,00 0,89 0,73 0,80
Mykolaiv 1,02 1,00 1,03 1,01 1,10 1,12 1,07
Odesa* 1,34 1,36 1,39 1,39 1,14 1,17 1,21
Poltava* 0,80 0,81 0,81 0,80 0,93 0,93 0,92
Rivne 1,11 1,11 1,14 1,12 1,20 1,26 1,25
Sumy 1,09 1,09 1,10 1,09 1,05 1,07 1,06
Ternopil 1,28 1,20 1,14 1,14 1,14 1,18 1,36
Kharkiv* 0,87 0,89 0,88 0,87 0,61 0,62 0,65
Kherson* 1,28 1,32 1,39 1,39 1,72 1,78 1,67
Khmelnytskyi 1,23 1,24 1,23 1,22 1,23 1,23 1,23
Cherkasy 1,06 1,06 1,08 1,08 1,05 1,05 1,06
Chernivtsi 1,47 1,42 1,43 1,41 1,58 1,63 1,64
Chernihiv* 1,29 1,30 1,33 1,33 1,16 1,19 1,15
Kyiv city* 0,72 0,73 0,71 0,72 0,41 0,41 0,38
Sevastopol city** 1,35 1,44 1,51 1,59 - - - 

* – without the indicator: “the share of the products sales volume by the small business in the total amount of the products sold in the region”
** – without the indicators: “the share of the products sales volume by the small business in the total amount of the products sold in the region” 
and “the share of the works/services execution for the public funds by the small business to the total number of such orders in the region”



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