ABSTRACT: Small and medium-sized enterprises (SMEs) play an essential role in national innovation systems, yet they remain persistently underrepresented in public procurement markets. This integrated narrative literature review synthesizes evidence from a structured review of 430 scholarly articles, including 26 empirical studies that directly examine the structural barriers, demand-side interventions, and supply-side capability supports influencing SME participation. Drawing on the Capability-Based View, the review identifies seven major categories of barriers that inhibit SME entry and competitiveness, along with institutional and capability-enhancing treatments aimed at mitigating these constraints. These dynamics appear across diverse procurement environments and intensify within high-cost, high-regulation sectors such as defense, which functions in this review as an illustrative application context rather than a distinct analytical domain. The review concludes with recommendations for future research, including qualitative multiple case studies and Modified Delphi designs, to advance understanding of capability formation, strategic adaptation, and procurement system reform. KEYWORDS: SME participation, public procurement, defense acquisition, capability-based view, structural barriers, institutional treatments, innovation policy