Empirical investigation of small and medium scale financing and standard of living in Nigeria

Abstract

Purpose: This study empirically examines the effect of small and medium-scale enterprise (SME) financing and the standard of living in Nigeria using a time-series data spanning 1992–2025. Methodology: The unit root test was employed to assess the stationarity of the variables which revealed a combination of I(0) and I(1) variables. The Autoregressive Distributed Lag (ARDL) bounds testing approach was applied to estimate long-run and short-run dynamic relationships. Results and conclusion: The ARDL bound test result indicates that credit to SMEs exerts a negative and significant relationship, while exchange rate is found to have a positive and significant long-run relationship on standard of living in Nigeria. Inflation rate and lending rate revealed a positive but statistically insignificant correlation. Based on the empirical analysis, this study concludes that while SMEs hold significant potential for economic transformation, there is a shortfall in its financing in Nigeria. Implication of findings: The implication of the above result is that fluctuation in lending rate, Exchange rate shows a positive long-run relationship with standard of living. Although statistically insignificant, inflation and lending rates indicate that macroeconomic instability undermines SME sustainability, the model stability reinforces the reliability of these findings.