Do Small and Medium Enterprises Spur Economic Growth? Evidence from Nigeria (1999-2020)

Abstract

This study investigates if Small and Medium Enterprises (SMEs) contribute to economic growth in Nigeria between 1999 and 2020. The data used for the study were obtained from CBN statistical bulletin and National Bureau of Statistics in collaboration with Small and Medium Enterprises Development Agency of Nigeria on the variables such as the number of SMEs in Nigeria (NSMES), Commercial Banks Credit to SMEs (CBSME), SMEs employment generation (SMEEG) and interest rate (INTRT). Since the data for the variables are time series which are always not stationary, the test of staionarity was conducted using Augmented Dickey-Fuller unit root test. ARDL Bounds test for co-integration was employed to check the long run relationship while Autoregressive Distributed Lag (ARDL) technique was employed to estimate the parameters of the model. From the results of the regression, some variables such as NSMES, CBSME and INTRT have positive impact on the economic growth while SMEEG has negative impact on economic growth in Nigeria in the short run. The result further shows that only NSMES has significant impact on economic growth, while CBSME, SMEEG and INTRT are insignificant. The study therefore, recommends that government should create enabling environments for the SMEs to thrive well. Also, commercial banks should encourage financial inclusion, that is, SMEs should be given easy access to loans. This can go a long way to help investors to bring their ideas into reality.