The Impact of Small and Medium Enterprises on Economic Growth in Nigeria (2013–2022)

ABSTRACT Small and Medium Enterprises (SMEs) are widely recognized as critical drivers of economic growth, industrial development, and employment creation in Nigeria. Despite their significance, the sector faces numerous challenges, including limited access to finance, infrastructural deficits, macroeconomic instability, and regulatory constraints. This study examines the impact of SMEs on Nigeria’s economic growth, focusing on the relationship between SME financing, inflation, interest rates, and GDP. Employing an Error Correction Model (ECM), this research utilizes secondary data from the National Bureau of Statistics (NBS), the Central Bank of Nigeria (CBN), and the World Bank, covering the period from 2013 to 2022. Findings from the ECM model reveal that finance available to SMEs (FASME) has a significant and positive effect on GDP growth, reinforcing the argument that improved SME financing leads to increased economic productivity. However, inflation (INF) negatively impacts GDP, indicating that macroeconomic instability weakens SME contributions to economic expansion. The effect of interest rates (INT) on economic growth was found to be statistically insignificant, suggesting that other financial constraints, such as collateral requirements and access to credit, may have a stronger influence on SME performance than borrowing costs alone. The Error Correction Term (ECM-1) is negative and statistically significant, confirming the presence of a valid long-run adjustment mechanism. The study recommends strengthening SME financing frameworks through expanded credit facilities, reduced interest rate burdens, and policy-driven support mechanisms.