Small and Medium Enterprises Financing and Economic Growth in Nigeria: An Econometric Analysis.

Abstract

This study investigates the role of Small and Medium Enterprises (SMEs) in the achievement of economic growth in Nigeria using a linear regression model and granger causality test. The Johansen 2 likelihood ratio test statistics, the trace and maximal eigenvalue cointegration test statistics, reveal two cointegrating equations or vectors among the variables of interest. The cointegrating regression result indicates that SMEs are indispensable in achieving sustainable economic growth as they exhibit positive impact on the economy. This implies a boost to the economy for every increase in the operations and activities of SMEs. The granger causality test reveals a unidirectional causal relationship between SMEs and economic growth, running from the former to the latter. Moving forward, adequate and coordinated financing with relatively low interest rate should be made available and assessable to SMEs across Nigeria, as the issue of inadequate funding has remained the major bane to their successful operations. Also, government should make available needed infrastructure and incentives like regular power supply, good roads and tax holiday. These would greatly enhance and encourage the activities of SMEs and position them to play their all important role in the achievement of sustainable economic growth in Nigeria.

Key words: Economic growth, granger causality, regression, SMEs.