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Is Small Beautiful? Small Enterprise, Aid and Employment in Africa 1 2 John Page and Måns Söderbom Abstract Aid providers frequently link supporting small firms to job creation. Small firms create about half of new jobs in Africa, but they also have higher failure rates. Ignoring firm exit exaggerates net employment growth. Using panel data for Ethiopia, we find that small and large enterprises create similar numbers of net jobs. Moreover, wages in small firms are persistently lower. To create more ‘good’ jobs aid should target the constraints to the growth of firms of all sizes. Improving the ‘investment climate’ and new programmes to increase firms’ capabilities—through for example management training—offer better prospects for employment creation. Keywords: aid, small enterprise, employment, firm exit, Africa JEL classification: J23, O14, O17, O19 UNU-WIDER is pleased to give Brookings Institution permission to reproduce the WIDER Working Paper 2012/94, ‘Is Small Beautiful? Small Enterprise, Aid and Employment in Africa’, authored by John Page and Måns Söderbom. We ask, as per standard reproduction protocol, that for each reproduction and/or extraction UNU-WIDER is cited as the original source and copyright holder. The following is how we prefer to be acknowledged: This working paper is reproduced here by permission of UNU-WIDER, who commissioned the original research and holds copyright thereon. Copyright  UNU-WIDER 2012 1Brookings Institution, USA, email: jpage@; 2University of Gothenburg, Sweden, email: Mans.Soderbom@economics.gu.se This study has been prepared within the UNU-WIDER project ‘Foreign Aid: Research and Communication– ReCom’, directed by Tony Addison and Finn Tarp. UNU-WIDER g