SMALL AND MEDIUM ENTERPRISES (SMES) AS ENGINES OF ECONOMIC GROWTH AND MACROECONOMIC STABILITY IN NIGERIA: EVIDENCE FROM FMOLS

Abstract

This study investigates the impact of small and medium-scale enterprises (SMEs) on economic growth in Nigeria using annual time series data spanning 2001–2022. Employing a combination of descriptive and econometric techniques, including Augmented Dickey-Fuller and Phillips-Perron unit root tests, Engle-Granger and Phillips-Ouliaris cointegration approaches, and Fully Modified Ordinary Least Squares (FMOLS) estimations, the analysis establishes a long-run relationship between economic growth and SME-related variables such as loans to SMEs, SME growth contribution, interest rates, inflation, and exchange rates. The findings reveal that loans to SMEs and SME growth significantly and positively influence economic performance, while exchange rate depreciation exerts a negative impact. Interest rates were found to be positively associated with growth when moderated by access to credit, whereas inflation had an insignificant effect in the long run. Robustness checks through sensitivity analyses confirm the stability of SME coefficients across alternative model specifications. The research paper concludes that SMEs can play a central role in the long-term economic transformation of Nigeria and suggests the policy, which can enhance the access to affordable finance, stabilise exchange rates, and integrate SMEs into innovation ecosystems and value chains.