Page 37 - Azerbaijan State University of Economics

A.M.Gebreselassie: The Impact of Economic Integration on SME
Competitiveness in Ethiopia, Tigray

2. REVIEW OF RELATED LITERATURE
2.1 Concept of Economic integration and competitiveness
The newly designed Ethiopia Development Strategy published in 2011, defined SMEs
based on capital and Labor. Small enterprises are those with 6-30 workers and total
capital, not exceeding 1.5 million Birr for manufacturing enterprises, while medium
enterprises have 31-100 workers with a total capital of less than 20 million Birr.

2.2 Economic and integration theories
Integration is the process of bringing different economies together to remove their
barriers and utilization all potential opportunities to bring sustainable growth to the
country (Machlup et al,1977) cited by Amr Sadek et al, 2013, increase investment,
sustainable demand, utilization of resources, and production efficiency
(Marinov,1999; OECD,2018). Efficient allocation of resources brought about both
efficient utilization of these resources and plays a significant role in the production
of competitive products. Whereas improper strategic planning and not readiness for
restructuring brought about a decrease in production. Application of a passive
strategy instead of an active one, which is the slow resolution of new problems
decreased the competitiveness of the products. The renovation and technical
restoration based on the industry are implemented as part of investment programs. In
this case, the production became more effective, and a technical base of product
development is created. Thus, the government should realize the encouragement of
internal demand, encouragement, and regulation of export, encouragement of
technological development, and application of optimal government partnership in
strategic sectors (Gulbaniz,2012).

Balassa (1995) also mentioned economic integration increased economic growth,
improve access to advanced technology, way of communication, market structure,
increased competition, and uncertainty intended to lead to lower prices for distributors
and consumers. Additionally, it facilitates access to a larger consumer base and a
greater share of qualified workers (Hosny,2013). But increased exposure to
competition, political risk, and limiting rules and regulations. According to Margaret
Lee,2014 economic integration creates a common market and removes any trade
barrier to have regional cooperation and collaboration to free movement of production
factors working on equitable distribution of costs and benefits among countries (Lee
2003) cited by Dawit, 2017. However, economic integration and its benefits are not
fully applicable to integration because of the challenge of competition, market access
and free trade, and Human resources capability (Meier, 1990; OECD,2004).

37