Small and Medium Enterprises and Employment Generation in Nigeria: A Fully Modified Least Squares Approach

Abstract

This study examined the effect of small and medium-scale enterprises on employment generation in Nigeria using a time frame of 1990-2021. This study used secondary data that were collected from Central Bank Nigeria Statistical Bulletin and Word Bank Development Indicator. The study employed Augmented Dickey-Fuller (ADF) unit root test and Johansen Co-integration for the pre-test; while Fully Modified Ordinary Least Square (FMOLS) was used to investigate the relationship between small and medium-scale enterprises and employment generation in Nigeria. The findings from the study showed that there is a significant positive relationship between employment generation and some explanatory variables such as small and medium enterprises (SMEs), infrastructure (INFR), and inflation (INF) with estimate values of 0.6546, 0.1377, and 0.136254% respectively. However, the result of the study also showed that there is a significant negative relationship between employment generation and interest rate (INR) with a coefficient of -0.4932%. The overall result of the study showed the existence of a long-run relationship between the dependent variable and independent variables. Based on the findings, the study recommended that government should ensure that its policies towards small and medium enterprises (SMEs) are encouraging by ensuring that such policies reflect economic reality in the country. Also, the government should always embark on interest rate reforms that could be achieved by ensuring that lending interest rate to the real sector of the economy is kept at an affordable level that would encourage small and medium enterprises (SMEs) to boost investment.