Inflationary Trends and the Growth of Small and Medium Enterprises (SMES) in Nigeria

Abstract

This study investigated the effect of inflationary trends on the growth of Small and Medium Enterprises (SMEs) in Nigeria, with particular emphasis on the period spanning from 1990 to 2024. Inflation was proxied using four key indices: Consumer Price Index (CPI), Producer Price Index (PPI), Core Inflation Rate (CIR), and Wholesale Price Index (WPI), while SME growth was measured through their contribution to Nigeria’s Gross Domestic Product (SMECGDP). The study adopted an ex-post facto research design, utilizing annual secondary time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and National Bureau of Statistics (NBS) annual reports. Given the macroeconomic nature of the variables and their potential mixed stationarity properties, the Autoregressive Distributed Lag (ARDL) bounds testing methodology was employed using E-Views 9.0 to assess both short-run dynamics and long-run equilibrium relationships. The results revealed that none of the inflationary indicators—CPI, PPI, CIR, or WPI—exerted statistically significant effects on SME growth, either in the short run or the long run. These findings suggest that while inflation may influence the broader economic environment, it does not independently serve as a primary driver or inhibitor of SME performance in Nigeria. The insignificance of these variables calls attention to the role of other non-price macroeconomic and structural factors—such as infrastructural challenges, access to finance, regulatory inconsistencies, and institutional inefficiencies—which may have more pronounced impacts on SME development. The study concludes that inflation-targeted policies alone may be insufficient to drive meaningful growth in the SME sector. It recommends that policymakers focus more on comprehensive and SME-specific strategies aimed at enhancing resilience, innovation, and productivity. This research contributes to the expanding literature on inflation-SME dynamics and offers methodological insight into ARDL modeling in the context of emerging economies.