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Small and Medium Scale Enterprises Development and Economic Growth Nexus in Nigeria: The Role of Institutional Quality

Author

Listed:
  • Daniel Akoh Atakpa

    (Department of Economics, Prince Abubakar Audu University, Anyigba, Kogi State, Nigeria.)

  • Lawal Dansuma Yusuf

    (Department of Economics, Prince Abubakar Audu University, Anyigba, Kogi State, Nigeria.)

  • Adegboyega Alimi Oyediran

    (Department of Economics, Prince Abubakar Audu University, Anyigba, Kogi State, Nigeria.)

  • Friday Ojonugwa Godwin

    (Department of Economics, Prince Abubakar Audu University, Anyigba, Kogi State, Nigeria.)

  • Aminat Abubakar

    (Department of Business Administration, Prince Abubakar Audu University State, Nigeria.)

Abstract

Despite the acknowledged role of small and medium scale enterprises (SMEs) in driving economic growth, Nigeria continues to experience institutional weaknesses and financial constraints that limit the sector’s effectiveness. Poor governance structures, corruption, and restricted access to credit remain critical barriers to SME-driven development. This study addresses these challenges by examining the nexus between SME development and economic growth in Nigeria 2000-2024, with a particular focus on the moderating role of institutional quality. Using the AutoRegressive Distributed Lag (ARDL) model, the analysis draws on annual time series data to explore both short-run dynamics and long-run relationships. In the short run, credit to SMEs (CRTSMEs), gross fixed capital formation (GFCF), and inflation (INF) have significant positive effects on real gross domestic product (RGDP), while institutional quality, measured by the Corruption Perception Index (CPI), and its interaction with SME credit (CRTSMEs_CPI) show marginal negative effects. The error correction term is appropriately signed and statistically significant, indicating a convergence toward long-run equilibrium. In the long run, SME credit, institutional quality, and capital formation exert positive and statistically significant impacts on economic growth, whereas inflation and the interaction term negatively affect RGDP. These findings highlight the critical importance of SME financing and sound institutional governance in fostering sustainable economic growth in Nigeria. The study recommends that policymakers strengthen institutional frameworks and improve credit access to SMEs to fully harness their growth-enhancing potential.

Suggested Citation

  • Daniel Akoh Atakpa & Lawal Dansuma Yusuf & Adegboyega Alimi Oyediran & Friday Ojonugwa Godwin & Aminat Abubakar, 2025. "Small and Medium Scale Enterprises Development and Economic Growth Nexus in Nigeria: The Role of Institutional Quality," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(8), pages 2871-2883, August.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-8:p:2871-2883
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    References listed on IDEAS

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    1. Abubakar, Sule, 2020. "Institutional Quality and Economic Growth: Evidence from Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 8(01), January.
    2. Dani Rodrik, 2007. "Introductiion to One Economics, Many Recipes: Globalization, Institutions, and Economic Growth," Introductory Chapters, in: One Economics, Many Recipes: Globalization, Institutions, and Economic Growth, Princeton University Press.
    3. Meghana Ayyagari & Thorsten Beck & Asli Demirguc-Kunt, 2007. "Small and Medium Enterprises Across the Globe," Small Business Economics, Springer, vol. 29(4), pages 415-434, December.
    4. Iheonu, Chimere & Ihedimma, Godfrey & Onwuanaku, Chigozie, 2017. "Institutional Quality and Economic Performance in West Africa," MPRA Paper 82212, University Library of Munich, Germany.
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