Economics of Planning 32: 191–209, 1999. © 1999 Kluwer Academic Publishers. Printed in the Netherlands. 191 Long and Short Run Determinants of Small and Medium Size Enterprise Share: The Case of Venezuelan Manufacturing ALAN MULHERN and CHRIS STEWART Kingston University, UK Abstract. Two recent studies of SME share determination have employed a partial adjustment model which specifies disequilibrium as the sole means of explanation. Contemporaneous information is found to be crucial in both analyses and suggests forward looking behaviour in the equilibrium specification. Time series data available for Venezuela allows the testing of such an equilibrium using the Engle and Granger (1987) error correction methodology. We find that current dated variables are important in the short rather than long run determination of SME shares and that only information known at the time the equilibrium is formed enters the long run component. The primary factors explaining equilibrium share are barriers to entry, factor mix, enterprise modernisation and a new exogenous proxy variable, GDP. The main determinants of short run movements are factor mix and enterprise modernisation. JEL Classification: L6, C5 Key words: error correction, manufacturing share, SME, short and long run determinants, Venezuela 1. Introduction Acs and Audretsch (1989), hereafter AA, established a model for examining U.S. small and medium size enterprise (SME) manufacturing share with respect to a series of explanatory variables. ⋆ The model and variables that they used have been the basis for subsequent work in the area. Thomadakis and Droucopoulos (1996), hereafter TD, and Mulhern and Stewart (1998), hereafter MS, recently analysed the determinants of changes in SME shares for Greece and Venezuela, respectively. Following Levi’s (1985) study of industry concentration they employed a partial adjustment formulation which depicted the change in SME share to be solely de- termined by some proportion of last period’s disequilibrium. In both TD’s and MS’s studies the favoured specification embodied an equilibrium based upon information not known when the equilibrium was determined. Appeal is made to Muth’s (1961) rational expectations hypothesis to justify this specification. One clear conclusion of these studies is that current dated variables, representing information not known ⋆ White (1982) established early methodology for looking at SME share. AA use different methodology and data. However they broadly concur in their results.