SMEs FINANCING AND ITS EFFECT ON MANUFACTURING SECTOR GROWTH IN NIGERIA: AN EMPIRICAL ASSESSMENT

Hillary Chijindu Ezeaku, Gabriel A. Anidiobu, Paschal I. P. Okolie

Abstract


This paper assessed the effect of SMEs financing on manufacturing sector growth in Nigeria using annualised data from 1981 to 2014. A cointegrating relationship was determined using the Engel and Granger residual based approach which showed evidence of a long-run relationship between SMEs credit and manufacturing output growth in Nigeria. The results of the error correction model showed that SMEs financing had exerted positive influence on the manufacturing sector growth. The finding indicated that when credits to the SMEs increased by 1%, manufacturing output rose by 14.5%. The results also revealed that interest rate and inflation rate had negative effect on manufacturing sector growth. A unit change in interest rate led to 15.7% fall in output growth of the manufacturing sector. We conclude that while SMEs is an important sector that can drive the Nigerian economy, rising interest rate stifles their growth and overall economic impact. This sector needs nurturing hence the government and monetary authorities should make policies and create enabling environment for SMEs to thrive. Access to fund should also be made easy and at low interest rate.

 

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Keywords


SMEs, manufacturing sector, error correction model, Nigeria

References


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