SME Credit Financing, Financial Development and Economic Growth in Nigeria

Abstract

This paper examines the impact of small and medium-scale enterprises (SMEs) credit financing and financial market development and their shocks on the output growth of  Nigeria. The study estimated a VAR model for Nigeria using 1970-2013 annual data  series. Unit root tests and cointegration are carried out. The study explores IRFs and  FEVDs in a system that includes output, commercial bank loan to SMEs, domestic  credit to private sector by banks, money supply, lending rate and investment. Findings  suggest that shocks in commercial bank credit to SMEs has a major impact on the  output changes of Nigeria. Money supply shocks also have a sizeable impact on output  growth variations amidst other financial instruments. Lastly, neutrality of investment  does not hold in Nigeria as it also has impact on output fluctuations.

Keywords: SMEs financing, financial development, investment, output, Nigeria.
JEL Classification: C