Monetary policy instruments and growth of small and medium scale enterprises in Nigeria (1981-2020)

Abstract

This research discourse critically investigates monetary policy instruments and growth of small and medium scale enterprises in Nigeria spanning from 1981 to 2021. Secondary data were obtained from Central Bank of Nigeria (CBN) statistical bulletin. Augmented Dickey Fuller unit root test was adopted to ascertain the stationarity of the variables. The ADF unit root test revealed that the variables have mixed order of integration 1(1) and 1(0). This situation makes it necessary for the study to adopt Autoregressive distributive lag to ascertain long-run relationship between the variables using bound test. The result from ARDL establish that in the long-run only broad money supply contribute significantly to the growth of medium scale enterprises in Nigeria. It equally established that monetary policy rate (MPR) had negative, but significant relationship with proportion of service sector to gross domestic product (SGDP) in Nigeria in the short-run. The ARDL result further showed an insignificant correlation between cash reserve ratio (CRR), treasury bill rate (TBR) and the proportion of service sector to gross domestic product (SGDP) in Nigeria. The implication of this result is that if more funds in the guise of money supply is directed to small and medium scale enterprises in the country, unemployment rate and prices of goods and services would reduce. However, increase in other variables such as TBR, MPR, and LR would not enhance the growth of small and medium scale enterprises in Nigeria. The study recommended amongst others that the monetary authority should mandate deposit money banks to direct bulk of its loans to registered small and medium scale enterprises to enable them expand on their productive activities and help reduce unemployment and stable price level in the country.