Selected Economic Policies on the Growth of Small and Medium Enterprises in Nigeria

In Nigeria, economic policy should set the parameters in the economic sys-tem of the country, which should constitute the key part of the economic practice thereby creating an environment affecting the development and functioning of either collective or individual Small and Medium Enterprises (SMEs) operators and thus logically affecting the sector(s) of the economy. This work examines the effect of selected economic policies on the growth of SMEs in Nigeria. Notwithstanding the attention placed on monetary, fiscal and trade policies, in the overseeing of the economy, the SMEs sector all encompassing, Nigerian economy particularly SMEs are up until the present time of this study not growing as expected. The time frame was from 1986 to 2017, a thirty-two-year study. Research design employed was ex-post facto and a population of seventy-two thousand eight hundred and thirty-eight (72,838) SMEs in Nigeria were used. The sample size was the entire 72,838 SMEs of which the study relied on reports from Central Bank Statistical Bulletin and SMEDAN, thereby employing the Error Correction Mechanism (ECM) tool of analysis to analyze the time series data. The study found that economic policy (proxies: monetary policy, fiscal policy and trade policy) had no positive significant effect on the growth of SMEs in Nigeria. Therefore, the study recommends that economic policy should be design and formulated in such a way that the goals the SMEs want to achieve through monetary, fiscal and trade policies should be realistic and feasible in terms of growth.

Open Journal of Business and Management from both academics and non-academics practitioners. The literature on economic policy is broad and some researchers have made attempts to theorize on it e.g. Jack and Douglas (1990). Every economic policy has both macroeconomic and non-economic components. The macroeconomic component is the total effect that a policy would have on economic growth, unemployment, and inflation, both in the short run and long run. The noneconomic component includes all other effects such as culture, religion and family. These two components then give rise to two types of policy decisions: 1) explicit economic policy and 2) derivative economic policy.
On the one hand, an explicit economic policy is one that is proposed to solve a specific macroeconomic problem. The economic component of the policy provides the impetus for action. Explicit economic policies include fiscal policy, monetary policy, wage and price controls, investment tax credits, countercyclical public works, or a revision of the tax code to stimulate work, savings, or investment (Douglas, 1990). On the other, a derivative economic policy is a policy that someone proposes to ameliorate some other condition; although it also has macroeconomic effects. Derivative economic policies include all expenditure programmes, all attempts to modify the tax code to achieve noneconomic goals, and all regulatory or incentive programmes that unintentionally alter the way individuals work or save or the way firms invest (Douglas, 1990).
Historically, on 1st October 1960, Nigeria gained her independence. During this period, the most influential economic sector was agriculture. Its contribution to Gross Domestic Product (GDP) was about 70% and the knock-on effect showed a similar percentage rise in employment of the working population, as well as about 90% of foreign earnings in revenue for the Federal Government.
Early post-Independence period (1960s to mid-1970s) saw a rapid growth of industrial capacity and output as the contribution of the manufacturing sector to GDP rose from 4.8% to 8.2% (Nwajiuba, 2012).
In general, Nigeria experienced economic and political issues during the 1980s as a result of an ongoing totalitarian military regime. Foreign currency was scarce, and the continual increase in the exchange rate also reduced agricultural output, which remained below levels attained in the early 1970s. Due to this, annual GDP growth abruptly slowed and became negative in 1981 (Hinchliffe, 2002). The Shagari Government introduced severe budget cuts and steps to strengthen the external situation in April 1982 as a result of the economy's dramatic deterioration. The business landscape from 1981 to 1982 was severely impacted by SAP's austerity measures.
As the pain of a Structural Adjustment Program (SAP), which was put in place in 1986 into the Nigerian policy intensified, and with no proof of a turnaround of the economic recession, the nation embraced a policy of guided deregulation in the mid-1990s. Under SAP, efforts were made to check the length of liberalization. As a result, a dual exchange rate emerged: an official rate, which the government used for essential transactions; and a second rate, which served F. S. Udoh et al. DOI: 10.4236/ojbm.2023.115108 1950 Open Journal of Business and Management as the inter-market exchange rate (CBN, 1993).
The intervention in the market operations by the military rulers' in Nigeria largely dictated the economic policy that was guided by deregulation primarily to service their cronies. Although, the coming back of democracy in 1999 ushered in a new chance for economic liberation, which empowered some economic debates on and design for growth albeit poverty easing. By 2003, the macroeconomic policy apparatus had emphasized a path way of prominence of the economic restrictions and sincere obligation to personal enterprise-led development. The economic development policy was packaged as "National Economic Empowerment and Development Strategy" (NEEDS), (NPC, 2004).

Concept of Economic Policy
Economic policy often times are put together to identify, analyzed and then solve issues, which comes in conflict separating the economy and its objectives over a specific period of time. This of course abstracts from the aberration of self-interest motivated economic policies. Adedipe (2004) states that the preparation of an economic policy entails the collection, arrangement, analysis, summary and interpretation of economic data. The quality of data input into policy formulation then becomes critical to evolving policies that will impact the macro-economy in the most desired sectors for maximum benefit to the economy-whether National, State or Local Government, under the federal structure Nigeria operates (Adedipe, 2004).
Economic policy differs significantly depending on whether the government is considering explicit economic policy or derivative economic policy (Douglas, 1990). For derivative economic policy, legislators pay greater attention to the noneconomic components, which tend to be relatively large, than to the economic components, which are usually much smaller. For explicit economic policy, the emphasis is reversed. Legislators focus more on the economic components and give proportionally less attention to the noneconomic components. In both cases legislators' calculations reflect the way in which the issues might enter citizens' assessments in future business (Douglas, 1990).

Concept of Small and Medium Enterprises
In the world all over, countries do not use the same definition to classify their SMEs sector, nor does a universal definition appear to be put in place. Nonetheless, there are three specifications that are overall put in place by so many nations, either combining them or single and they are: number of workers employed; capital investment on plant and machinery and volume of production or turnover of business. In U.S.A, a business that is little might be a bigger one in a nation like Nigeria. Moreover, the definition of SME also varies overtime from agencies or developing institutions to another, depending on their policy focus (Julius, Agbolade, & Johnson, 2016).
Small and Medium Scale Enterprises (SMEs) is seen from two perspectives; qualitative and quantitative variables. These two criteria include: relative size within the industry, capital employed, market share, number of employees, turnover, available finance, and profit. Quantitative definitions mainly express the size of enterprises, mainly in monetary terms such as turnover, asset value, profit, as well as quantitative index like number of employees (Etuk, Etuk, & Baghebo, 2014). Adenikinju and Olofin (2000)

Cause and Effect Theory
The theoretical base found adequate for this work is the cause and effect theory.

F. S. Udoh et al. Open Journal of Business and Management
The theory explains that, no occurrence takes place by chance but happens as a result of a cause. By implementing this to the study, it can be described that SMEs growth and performance is cause by economic policies. The firmness of the policies in a long run guarantees efficient growth of the sector while constant fluctuation of these policies could either make or mar the growth of the sector.
According to Anghelache et al. (2016), cause and effect links between macroeconomics variables and growth provide useful information for policy makers in the government and private agencies on the systematic relationship that reveals the influences of certain factors on growth. When these variables are not stable, it therefore becomes the function of the government to make certain that macroeconomics policies are carried through to manage and control these variables so as to spur growth in all sectors of the economy. The backbone of a nation's development is her SMEs. With this, for macroeconomic variables to be stable, the nation has to strengthen or support the advantages gained from this subsector. This theory was also employed by Kebede and Simesh (2015).

Methodology
The research design adopted for this study was the ex-post facto research design.
According to Kerlinger and Howard (2013) The annualized secondary data was analysed using the Autoregressive Distributed lag (ARDL) and Error Correction Mechanism (ECM), as well as employing the co-integration method to test for the long-run effect among the series. In other words, the underlining postulation is that all variables are integrated of order 1 or I (1).

Unit Root Test
In this study, unit root tests (pre-estimation diagnostics tests) were conducted to ascertain the stationarity of the data before carrying out the Autoregressive Distributed Lag (ARDL) cointegration test. The unit root tests are valid if the time series y t is well characterized by an AR (1) with white noise errors. Many financial time series, however, have a more complicated dynamic structure than is captured by a simple AR (1) model. Said and Dickey (1984) where D t is a vector of deterministic terms (constant, trend etc.). The p lagged difference terms, t j y − ∆ , are used to approximate the ARMA structure of the errors, and the value of p is set so that the error ε t is serially uncorrelated. The error term is also assumed to be homoskedastic. The specification of the deterministic terms depends on the assumed behavior of y t under the alternative hypothesis of trend stationarity. Under the null hypothesis, y t is I (1) which implies that 1 φ = . The ADF t-statistic and normalized bias statistic are based on the least squares estimates.

Model Specification
According to Reem (2009), his policy is based on the theories of British economist John Magnard Keynes whose theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. To establish the relationship between economic policy and growth of SMEs, the researcher adopted a growth model, which is in line with that applied by Adeoye (2006), with slight modification to suit the adaptations to this study.
The mathematical specification of the implicit model that expresses the relationship between economic policy and growth of SMEs is expressed as: ( ) Factoring in the proxies of MP, FP and TP into the implicit functions of Equations (2) to (4), we have: Setting up Equations (5), (6) and (7) in a linear stochastic form (or econometric form) is expressed as: The introduction of natural logs to Equations (8) (9) and (10)  2) It brings different units to a common base for measurement.
3) Logarithm ensures that the coefficients of the variables are effective in analysing macro-economic behaviour, since the coefficients are elasticises used to explain the response of a change in one variable with respect to another. On the strength of these, taking the natural logs of both sides of Equations (8) (9) and (10) will result in the following Equations (11), (12) and (13):  (11), (12) and (13) into an ARDL model, we have: Once a long-run association is established between the variables in Equations (14), (15) and (16) the research therefore moves forward to determine the long and short-run dynamics using unrestricted Error Correction Mechanism (ECM) approach.
The 1 t ECT − further captures the output evolution process by which agents adjust for prediction errors made in the last period. Hendry's (2005) general-tospecific modelling approach is adopted to derive a satisfactory parsimonious model for the economic policy and the growth of SMEs Equations (17), (18) and (19) which are data admissible, theory consistent and interpretable.

Descriptive Statistics
For us to have a view of the data used in this work, a quick look at the data employing descriptive statistics was carried out. This helps to emphasize the essence of the data for the variable and gives the average of the entire variables. With this outlook, a better perception of the arrangements concerning the data used was analysed. Herewith the summary is given in Table 1.
Giving the descriptive results in Table 1 Skewness, which measures the shape of the distribution, shows that only TO have its value to be negative, which suggests the distribution tailed to the left of the mean. However, the skewness of the other seven variables has its values to be positive suggesting the distribution tails to the right of its means.
Proxies that have worth of kurtosis less than 3 are called platykurtic (fat or short-tailed), GSMEP, EXR, TARRI, TAXES and TO proxies passed for this as at

Unit Root Test Results
A stochastic pattern that can be removed by differentiation typically describes time series data. Therefore, the unit root is a test of whether the data used in this description are stationary or non-stationary. This aims to determine whether there is a fictitious or absurd correlation between economic policies and the expansion of SMEs in Nigeria. Thus, the study applied Augmented Dickey-Fuller (ADF) approaches to evaluate and verify the series unit root property and model stability. From

Optimal Lag Length Test
The pick of optimal lag length is necessary so as to verify if enough lags is included in the ARDL. This can be seen in Table 3 where all the selection criteria (FPE, AIC, HQIC and SBIC) selected four (4) lags.

Co-Integration Test Results
To avoid a spurious regression, a pre-test has to be conducted. Tables 4-6     Notes: ** significant at 5%. Source: Authors computation, 2022 (Eviews-10). Notes: ** significant at 5%. Source: Authors computation, 2022 (Eviews-10).  in Nigeria. Table 9 of the Wald-test, emphasize that the F-value for the relationship between Trade policy (tariff and degree of trade openness) and the growth of SMEs in Nigeria was seen to be 2.45 and its p-value is 0.0812. Since the p-value is greater than 0.05% level of significance (falling in the acceptance region); with   that, the third null hypothesis is accepted (H 03 ), concluding that Trade policy (tariff and degree of trade openness) has a non-significant effect on the growth of SMEs in Nigeria between 1986 and 2017.

Stability Analysis of Macro-Economic Policy and Growth of SMEs in Nigeria
Different post estimation diagnostic tests were carried out to know the suitability and stability of the model as well as the robustness of the results. Accordingly, for reliability of estimates, the researchers acquired chains of residual and stability tests of a kind like heteroscedasticity test, serial correlation Lagragian Multiplier test (for higher order autocorrelation), and the normality test. Both the F-statistic and product of observation with the square coefficient of correlation (NR2) were obtained. Table 10 showed absence of indications of heteroscedasticity and serial correlation in the approximated ARDL-ECM mechanism were found to be greater than 0.05 or 5% as the p-values of both are (0.4092 and 0.8940). Also, the normal distribution, which used Jarque-bera test showed a normal distribution with a bell shaped symmetrical distribution at 5% significance level. The Jarque-bera probability holds its value at 0.685059 found to be greater than 0.05. Finally, the cumulative sum (CUSUM) stability tests (CUSUM and CUSUMSQ) in Figure 1 and Figure 2 revealed that the model is stable and the regression equation is correctly specified as the plots of the charts lie within the critical bounds at 5 percent significant level.

Monetary Policy result in
For the Residual Test of Fiscal Policy result presented in Table 11, it could be observed that there were no evidences of serial correlation and heteroskedasticity in the estimated ARDL-ECM model as the p-values of both (0.1441 and 0.1426) were found to be greater than 0.05 or 5 percent. In addition, Jarque-bera test for normal distribution revealed that the result attained a normal distribution with a bell-shaped symmetrical distribution at 5 percent significance level; while the cumulative sum (CUSUM) stability tests (CUSUM and CUSUMSQ) in Figure 3 and Figure 4 revealed that the model is stable and the regression equation is correctly specified as the plots of the charts lie within the critical bounds at 5 percent significant level.
Finally, the results of the post diagnostic test for the Trade Policy model, which are shown in Table 12, demonstrated that there is no evidence of serial correlation or heteroskedasticity in the estimated ARDL-ECM model, as both p-values (0.8610 and 0.6676) were determined to be greater than 0.05 or 5%. The        probability value of 0.838075, which was determined to be greater than 0.05, indicated that the result satisfied the criteria for a normal distribution with a bell-shaped symmetrical distribution at the 5% level of significance.
And finally, the cumulative sum (CUSUM) stability tests (CUSUM and CUSUMSQ) in Figure 5 and Figure 6 revealed that the model is stable and the regression equation is correctly specified as the plots of the charts lie within the critical bounds at 5 percent significant level.

Monetary Policy and Growth of SMEs (ARDL-ECM Results)
The ARDL-ECM result evaluates how the final equation changes to the long-run equilibrium. Hendry's (1987) methodology of "general-to-specific was employed to eliminate all insignificant lags. Accordingly, this led to an initial estimation of an ECM with three lagged differences of the explanatory variables, a constant term and error correction term lagged one (ECT t−1 ) The dimensions of the parameter space were then reduced to a parsimonious ARDL-ECM specification by using omitted and redundant variable test to exclude the statistically insignificant lags. The results of the reduced short-run dynamic policy model are presented in Tables 13-15    Notes: ***, ** and * indicate statistical significance at 10%, 5% and 1% levels, respectively. Source: Authors computation, 2022 (Eviews-10).

Fiscal Policy and Growth of SMEs
The ECT (−1) represents the speed of adjustment to restore equilibrium in the dynamic model following a disturbance. The estimated coefficient of the ECT

Trade Policy and Growth of SMEs
The ECT coefficient value of −0.7065 revealed that once there is disequilibrium

Discussion of Findings
Findings from the study revealed that monetary policy (interest rate, exchange rate and inflation) has no significant effect on the growth of Small and Medium Enterprises (SMEs) in Nigeria. This may be attributed to prime lending rate that witnessed relative instability after consolidation of 2005 and post-consolidation period of 2007. The results further imply that frequent depreciation of the naira due to fluctuations in exchange rates had adverse effects on the growth of small businesses in Nigeria. The findings are in agreement with Ishioro (2013) who observed that negative monetary shocks posed a constraint to the banking system's capability to dispose deposits due to adjustability of price that lead to a fall in real money balances causing interest rates to rise thereby increasing the cost of capital. Also, Findings from the analysis in hypothesis two further revealed that fiscal Policy (government expenditure and taxes) has no significant effect on the growth of Small and Medium Enterprises (SMEs) in Nigeria. The implication of these results is that there is lack of information and awareness on the part of proprietors of SMEs about schemes that are meant to reduce their administrative and production costs of operation at the initial stage of operation. Most SMEs are not aware of the tax holiday granted by the Nigerian government under the pioneer status that grant five years tax holiday (and can be extended for a further two years) to a new company registered in Nigeria. This is in-line with Adegbie & Fakile (2011) whose findings revealed that there is an insignificant relationship between tax and SME development in Nigeria; and that high tax rates are the major hindrances to output growth among small-scale businesses. Finally, findings from the third hypotheses of this study showed that trade policy (tariff and degree of trade openness) have no significant effect on the growth of Small and Medium Enterprises (SMEs) in Nigeria. This is due to the fact that SMEs lack the needed technology and the capability to achieve large-scale production, which should help reduce cost of production. This has indirectly constrained their ability to gain access to the global market because their products are not price competitive and mostly not standardized. It shows that amount generated from tariff placed on imported and exported goods in Nigeria has not hugely influenced SMEs growth in Nigeria. This finding is in tandem with the findings of Ishola et al. (2015) who found an insignificant impact between trade openness and economic growth in Nigeria.

Conclusions and Recommendations
Having examined the selected economic policies on the growth of SMEs in Nigeria and found out that monetary, fiscal and trade policies had a negative and non-significant effect on SMEs in Nigeria, the study concludes that major determinants of SMEs growth are policies directed on interest rate stabilization, exchange rates management and inflations rate targeting, tax rate reduction and stability, and government expenditure (spending) on infrastructure targeting. The implication is that the interplay of these variables is important to keep SMEs alive in Nigeria. The policy insinuation therefore, is that monetary, fiscal and trade policy should be set in such a way that the objective it wants to achieve is clearly and transparently defined in response to the dynamics of the domestic and global economic developments. Based on these conclusions, the study therefore recommends that economic policy should be design and formulated in such a way that the goals the SMEs wants to achieve through monetary, fiscal and trade policies should be realistic and feasible in terms of growth.