Full Length Research Paper
Micro, Small and Medium-Scale Enterprises (MSMES) Financing and Economic Growth in Nigeria: Evidence from Error Correction Model
MAMUDU Zebedee Udo* and ALIU Momodu Mohammed
Article Number - 633C8122C2E8E | Vol. 3(2), pp. 12-30, October 2022 |
Received: 25 February 2022 | Accepted: 21 September 2022 | Published: 5 October 2022
Copyright © 2024 Author(s) retain the copyright of this article.
This article is published under the terms of the Creative Commons Attribution License 4.0.
Abstract
This paper examined micro, small and medium-scale
enterprises financing and its impact on economic growth in Nigeria using the
Ordinary Least Squares methodology starting with the application of the
Phillips-Perron unit root test, Johansen Cointegration techniques, Pairwise
Granger Causality techniques and Error Correction mechanism. Annual time series
data from 1992 to 2020 on the selected
variables used in this work were obtained mainly Central Bank of Nigeria (CBN) Statistical Bulletin (2020). The
Phillips-Perron test statistics results showed that all the selected Economic
and MSMEs financing variables were stationary at first difference I(1), except
PLIR which was stationary at level I(0). The Johansen unrestricted
cointegration rank test results revealed the existence of a long run
relationship, as both Trace and Max-Eigen statistics indicated three and two
cointegrating equations respectively. The empirical results from the short run
error correction model showed that credit to SMEs by DMBs, total savings with
DMBs and total output of SMEs in Nigeria (SMEQ) had direct and significant
impact on real gross domestic product in Nigeria. Also, prime lending interest
rate, inflation rate and unemployment had inverse relationship with real gross
domestic product in Nigeria. The error correction mechanism (ECM) result which
was -0.722397 was statistically significant and had the appropriate sign. It
suggested however, that there was a high adjustment process on MSMEs financing
in Nigeria, since the speed of adjustment was 72 per cent approximately. The Diagnostic and stability tests confirmed the robustness and stability of
the model over time. The study therefore
recommended that the central bank of Nigeria should strengthen the policy on
deposit money banks’ credit to MSMEs in Nigeria to sustain funding for the
MSMEs and thereby enhance growth and development in Nigeria. Also, government
at all levels should establish government owned MSMEs, as this will lead to
inflation reduction and increase in employment generation as well as boost
economic growth and development in Nigeria. Keywords: Micro, Small and Medium-scale Enterprises, Real Gross Domestic Product, Credit to SMEs by DMBs, Prime Lending
Interest Rate, SMEs Output, Inflation and Unemployment Rate.
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Authors
MAMUDU,
Zebedee Udo1* and ALIU, Momodu Mohammed2
1Department of Economics,
Ambrose Alli University, Ekpoma, Edo State, Nigeria.
2Department of Accountancy,
Auchi Polytechnic, Auchi, Edo State, Nigeria.
*Corresponding author. Email: [email protected],
[email protected]; Tel.: 08132577663, 07033295427
How to Cite this Article
Mamudu, Z. U. & Aliu, M. M. (2022). Micro, Small and
Medium-Scale Enterprises (MSMES) Financing and Economic Growth in Nigeria:
Evidence from Error Correction Model. Journal
of Economics, Business Management and Administration, 3(2), 12-30.
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