The effect of trade liberalization on SMEs performance in Nigeria


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Small and medium enterprises (SMEs) are vital for achieving sustainable development. However, it remains unclear whether engagement in international trade-oriented policies improves SMEs operations, particularly in Africa, where concluded arrangements are made to partake in the African Continental Free Trade Agreement (AfCFTA). This study examined the role of trade liberalization on SMEs performance in Nigeria using the Central Bank of Nigeria’s statistical bulletin and the World Development Indicators from 1981 to 2019. The ARDL model showed that a 1% rise in trade openness improves SMEs performance by approximately 2% but only in the short run. For the control variables, a 1% increase in labor force participation reduced SMEs performance by about 6% in the short run and increased it by approximately 9% in the long run. The results also showed that a 1% rise in gross fixed capital formation in the short run reduced SMEs performance by approximately 5%. The results showed an inconclusive short-run effect of the exchange rate and taxes on SMEs performance. With a 1% increase in the exchange rate, SMEs performance improved by approximately 0.04% in the long run. Similarly, a 1% increase in taxes improves SMEs performance by approximately 2.90% in the long run. Findings suggest a positive effect of trade liberalization on SMEs performance and support the operation of AfCFTA in achieving sustainable development. Policy efforts should focus on productive investment strategies and using locally sourced inputs to raise the competitiveness of SMEs.

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    • Figure 1A. Cusum test
    • Figure 2A. Cusum square test
    • Table 1. Variable description, source, and measurement
    • Table 2. Descriptive statistics
    • Table 3. Unit root test results
    • Table 4. Estimates of the ARDL model for the effect of trade openness on SME performance in Nigeria
    • Conceptualization
      Opeyemi Olagunju, Uche Osakede
    • Formal Analysis
      Opeyemi Olagunju, Olujide Olakanmi
    • Methodology
      Opeyemi Olagunju, Uche Osakede
    • Project administration
      Opeyemi Olagunju, Uche Osakede
    • Resources
      Opeyemi Olagunju, Olujide Olakanmi
    • Visualization
      Opeyemi Olagunju, Olujide Olakanmi
    • Writing – original draft
      Opeyemi Olagunju, Uche Osakede
    • Writing – review & editing
      Opeyemi Olagunju, Olujide Olakanmi, Uche Osakede
    • Data curation
      Olujide Olakanmi, Uche Osakede
    • Investigation
      Olujide Olakanmi, Uche Osakede