Small and Medium Scale Enterprises (SMEs) Performance and Economic Growth Nexus in Nigeria: ARDL - Bound Testing Evidence

Hussaini Mairiga Tahir, Auwal Ibrahim and Damina Hamid Babawulle
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Hussaini Mairiga Tahir: Department of Economics, Faculty of Social Sciences, Bauchi State University, Gadau, Nigeria.
Auwal Ibrahim: Department of Economics, Faculty of Social Sciences, Bauchi State University, Gadau, Nigeria.
Damina Hamid Babawulle: Department of Economics, Faculty of Social Sciences, Bauchi State University, Gadau, Nigeria.

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Abstract: Empirical studies on the link between the performance and impact of SMEs activities on economic growth have yielded mixed results. Nevertheless, this research attempts to examine the link between the performance of SMES and economic growth in Nigeria over the period of 1980-2017. Annual series data were obtained and ARDL approach to cointegration was utilised to examine the issue. Results revealed positive and negative relationships; but the variables were cointegrated, thereby fulfilling the mandatory requirement for estimating long run relationship among the variables. The error correction term is positive and significant but less than 1; thereby indicating that the speed of adjustment towards long run equilibrium is very slow at 4.4% annually, if any shock(s) occurred. Small and medium scale enterprises output, proxy for SMEs performance and domestic credit to private sector as percentage of GDP were found to positively impact economic growth in the long run though their relationship with economic growth was negative and significant in the short run; while commercial bank loan to SMEs exhibited positive and significant relationship with economic growth both in the short run and the long run thereby underlining the importance and significant role of SMEs performance, domestic credit to private sector and commercial bank loan to SMEs to the economic growth of Nigeria over the period of study.However, lending interest rate exhibited a negative and significant relationship with economic growth in the short run but turned to a positive but insignificant relationship in the long run; while the economy's real interest rate exhibited a positive and significant relationship with economic growth in the short run but turned to a negative and significant relationship in the long run thereby indicating that both lending rate and the real interest rate were not favourable to growth of the Nigerian economy over the period of study, a situation attributable to the high rates which fall within the double digit range. The policy implication of these findings is that commercial bank loan to SMEs, other SME funding options and percentage of domestic credit to the private sector should be increased, vigorously promoted and monitored to enhance the performance of SMEs through increased output and economic growth of the country. The current effort by the government of Nigeria to promote and widen funding options to SMEs through the Central Bank of Nigeria (CBN) Financial Support Service (FSS) unit is a step in the right direction and should be sustained. Efforts should be geared towards ensuring that the lending rate and the economy's real interest rate find a threshold level, and kept at single digit to enable efficient performance of SMEs and enhance their global competitiveness and the economic growth of Nigeria.

Date: 2021-09-11
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Published in Asian Journal of Economics, Finance and Management , 2021, 3 (1), pp.540-561

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