Banks Credit, Macroeconomic Dynamics and the Performance of Small and Medium Scale Enterprises in Nigeria: A Non-Linear ARDL Approach

Abstract

This paper examines the impact of banks credit and macroeconomic dynamics on Small and Medium Scale Enterprises in Nigeria using annual data from 1992 – 2016. The long-run and short-run relationship amongst the variables were examined via the non-linear ARDL model. The Augmented Dickey Fuller (ADF) and Philip Perron’s (PP) test reveals that none of the variables were I(2). The Bounds test to cointegration confirms the existence of a long-run relationship. The non-linear ARDL results suggests that in both long and short-run estimations, that a rise in banks credit, government tax revenue and negative shocks in interest rate, inflation rate and exchange rate will trigger a fall in SMEs performance in Nigeria. Furthermore, it was observed that negative shocks tend to be larger in magnitude than positive ones. This study therefore recommends amongst others, that loans to the small and medium enterprises (SMEs) sector be monitored properly, so as to ensure that such loans are not channelled to other purposes.