There is an ongoing debate in the literature on development of small and medium
enterprises (SMEs) in less developed countries (LDCs) on two issues: The
survival of SMEs in the course of economic development and the importance of
government promotion programs for SMEs development. This research aims to
examine those issues with Indonesian data. As a means to address those issues, it
uses a simple regression model. It shows that both real gross domestic product
(GDP) per capita and government development expenditure (in which part of it is
used to finance SMEs development promotion programs) have positive
correlations with SMEs share in GDP. With this finding, the research argues that
SMEs in LDCs have a chance to survive and even to grow in the long-run for
three main reasons: (a) they have a niche market for themselves; (b) these
enterprises act as a 'last resort' for the poor; and (c) the production linkages
between SMEs and large-enterprises (LEs) in the form of subcontracting have
become increasingly important, and thus, they will grow along with the growth of
LEs
