One of the important components of economic development which contributes to the growth of the population employment level is the increase in the country’s export potential, development of domestic market of goods and services and small and medium – sized entrepreneurship. It plays special role in the filling of state budget in countries with low and medium level of economic development. The purpose of this paper is to model the relationship between the level of economic development of the country as an indicator of the functioning of small and medium- sized enterprises, assessment of the impact of inflation on the level of economic development. The information base of the research is the data of the World Bank, National Bureau of Statistics of Nigeria, and annual statistical bulletin of the Central Bank of Nigeria. The object of the study is indicators of the functioning of small and medium-sized enterprises and economic development in Nigeria, the period of study is 1981-2021. As dependent variables characterized by the development of a small and medium- sized enterprise, the volume of income per unit of capital was chosen and the GDP was chosen as an indicator of the country’s economic development. Factor variables are characterized by the relationship between the development of small and medium-sized enterprises and the economic development of Nigeria. These include gross capital formation, interest rate, exchange rate and inflation rate. The methodological tools for researching the relationship between the analyzed indicators are the method of estimating the autoregressive distributed lag, the extended Dickey Fuller test and Granger test. According to the results of econometric modeling, the negative impacts of the growth of the exchange rate and the level of inflation on the development of the Nigerian economy has been proven. Thus, a 1% increase in exchange rate would lead to a 0.01% decrease in GDP, while a 0.01% decrease in inflation would be accompanied by an increase in GDP of about 1%. At the same time, gross capital formation exerts a positive and statistically significant influence on the volume of GDP (an increase of 1% will lead to an increase of GDP by approximately 7%). Based on the results of the research, it was concluded that stimulating the growth of investment in small and medium- sized enterprises by simplifying access to credit resources, infrastructure development and capacity building is a prerequisite for long- term socio- economic development of Nigerians.