Patient Capital and SME Development in Kyrgyzstan: Institutional Embeddedness and Sustainable Growth

Abstract

This paper investigates the role of long-term, risk-tolerant patient capital in fostering sustainable growth among small and medium-sized enterprises (SMEs) in Kyrgyzstan, a transition economy characterized by a dual-policy framework—concurrent membership in the Eurasian Economic Union (EAEU) customs union and a bilateral Free Trade Agreement (FTA) with China—alongside significant land fragmentation. By integrating institutional embeddedness theory with resource-based view (RBV) perspectives, we propose two context-specific analytical frameworks: the “dual-policy hub economy” and “land-constrained resource–capital synergy.” Employing firm-level panel data from the National Statistical Committee of the Kyrgyz Republic (2019–2025), we utilize instrumental variable probit, spatial Durbin model (SDM), and quantile regression methodologies. Findings demonstrate that patient capital exerts a significant positive impact on SME productivity, export performance, and technological upgrading. SMEs located within free trade zones exhibit the most pronounced export performance improvements, while agricultural SMEs, in particular, utilize patient capital to obtain international certifications and mitigate reliance on imported raw materials via a sequential mechanism involving institutional coordination, resource integration, and technological upgrading. This research contributes to institutional embeddedness theory by contextualizing it within Central Asian settings and provides evidence-informed policy recommendations for designing patient capital instruments. Future research could expand the temporal coverage and include cross-country comparative analyses to explore how varying institutional configurations influence the effectiveness of long-term capital.