Purpose - From the advanced path of development and current situation, the development of enterprises plays a tremendous role in promoting national economic growth and raising the overall national strength. Therefore, this paper aims at examining the mutual effect between small & medium enterprises and economic growth.
Research design, data, and methodology - In order to address the operating mutual effect between the small & medium enterprises and economic growth more clearly, this paper sets Alibaba Group and Hangzhou as an example. Meanwhile, the annual data from 2000 to 2017 will be employed, and an empirical analysis will be performed under the vector error correction model.
Results - The findings display that the total revenue of Alibaba Group has a positive effect on economic growth in city of Hangzhou. However, the Granger Causality test implies that there is only a unidirectional causality between total revenue of Alibaba Group and economic growth in Hangzhou. More specifically, 1% increase in total revenue of Alibaba Group can result in 0.272% in economic growth of Hangzhou in the long run.
Conclusions - In summary, for the long run, the local governments should promulgate a series of policies to assist the small & medium enterprises like Alibaba Group to improve the local economic growth as seen in the city of Hangzhou.

Abstract
 1. Introduction
 2. Literature Review
 3. Research Method
  3.1. Granger Representation Theorem
  3.2. Modeling
 4. Empirical Analysis
  4.1. Variables Description
  4.2. Unit Root Test
  4.3. Engle–Granger Two-step Method
  4.4. Granger Causality Test
  4.5. Vector Error Correction Model
  4.6. Impulse Response Function
  4.7. Variance Decomposition
 5. Conclusion
 References

• Yugang He(Department of International Trade, Chonbuk National University)