Diversifying the Nigerian Economy: Role of Small and Medium Scale Enterprises

Abstract:

This research work focused on economic diversification of the Nigerian economy through Small and Medium Scale Enterprises (SMEs). The major objective is to ascertain the impact of Small and Medium Scale Enterprises on the growth of the Nigerian economy over the period 1981 to 2017 using economic growth variables. The research work departs from the comparative advantage theory to technology gap theory that emphasizes that technological change brings about productivity improvement which spills over to small and medium firms. This enhances the growth of SMEs and results in increased production of raw materials and other non-oil products which are in abundance in Nigeria. To drive home this objective, we formulated a simultaneous equation model using secondary data on GDP (as a measure of economic growth), Total Oil and Non-oil Trade, Bank loans to SMEs, Output of SMEs and Interest and Inflation rates (as control variables). The data were analyzed using Two-Stage Least Squares (2SLS) technique having confirmed that the two equations of the model were over-identified. The results obtained confirmed the relevance of Small and Medium Scale Enterprises in the drive to diversify the Nigerian economy from oil-based to non-oil based. This research work provides empirical evidence on the topical issue of diversifying the Nigerian economy using relevant data to prove the extent to which SMEs have helped in growing the economy. It recommended ways of further improving the SMEs towards ensuring sustained growth of the Nigerian economy especially in this period of dwindling oil prices and climate abnormalities which pose serious hazard to our oil-based economy.