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Small and medium enterprises improve competition and entrepreneurship which will help countries exploit social benefits from greater competition and entrepreneurship. The SME sector in Ethiopia is the second largest employment and income generating sector next to agriculture. Despite the fact that a substantial number of Ethiopians make their living from incomes generated from SMEs, the sector, it suffers from a range of growth constraints. Hence, the aim of the study is to identify the growth determining factors of SMEs and depict the magnitude of their impact in the case of SMEs in Addis Ababa City, Ethiopia. First, all available literatures were reviewed which later helped the development of conceptual framework and research hypotheses. The research agenda was explained by taking Cobb- Douglas functional form of production function to present the relationship between input factors (labour, capital and total factor productivity) and levels of production (output). The results of analysis are presented in two stage of OLS analysis to exhibit the impact of the different firm growth determinants on production factors and there by output of SMEs.

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Tadesse Getacher Engida, M.A. in Development Management at Institute of Development Research and Development Policy (IEE), Ruhr-University in Bochum, Germany. Currently working in Mekelle University, Ethiopia as Lecturer in the programme of Public and Development Management.

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