Can MSMEs Foster Inclusive Growth? Evidence From Poverty and Inequality Dynamics in Latin America and the Caribbean

Abstract

This study investigates how Micro, Small, and Medium Enterprises (MSMEs) contribute to poverty reduction and income inequality in Latin America and the Caribbean (LAC). Drawing on panel data from 103 MSMEs across 11 countries between 2013 and 2022, we analyze how employment growth, revenue expansion, and enhanced start-up conditions contribute to inclusive development. Our findings reveal that employment growth has significant poverty-reducing effects but simultaneously correlates with increased income inequality, indicating an inherent tension in MSME-driven development. Revenue growth plays a minor role, while a more favorable start-up environment correlates with both lower poverty and reduced inequality. These results suggest that MSMEs can support inclusive entrepreneurship and inclusive growth only under institutional frameworks that promote fairness, formalization, and access. This study contributes to the corporate social responsibility literature by bridging micro-level firm dynamics with macro-level structural conditions through a context-sensitive institutional lens, which is rarely adopted in empirical CSR research. The observed duality between economic growth and social equity outcomes underscores the necessity for integrated strategies that align business performance with broader social responsibility objectives.