Msmes and Employment Generation in Nigeria

Type Journal Article - The Journal of Developing Areas
Title Msmes and Employment Generation in Nigeria
Volume 51
Issue 3
Publication (Day/Month/Year) 2017
Page numbers 229-249
This study seeks to evaluate the relationship between firm size and the net job creation in the Nigerian
economy. The essence of this study is to ascertain if MSMEs are actually fulfilling the significant
role purported to it by the literature in terms of employment generation. This is to ensure a proper
country specific understanding of the importance of MSMEs in employment generation so that when
clamouring for policy makers’ attention on MSMEs, it will be with a clear and deep understanding
of the significant role MSMEs play in the Nigerian economy. One of the major macroeconomic
policies of any economy is to reduce the unemployment rate to the barest minimum. However,
unemployment rate has become a menace that is confronting many economies, developed and
developing alike, and specifically, the Nigerian economy. This problem of unemployment was
exacerbated by the advent of the 2007 global financial crisis that originated from the United State of
America. Compounding the problem further for Nigeria, is the recent crash in the price of petroleum
in the world commodity market. Thus, leading to a reduction in the fiscal revenue with a concomitant
effect on the rising unemployment. The study employed dataset for 473 enterprises across all sectors
of the economy comprising 110 micro enterprises, 218 small scale enterprises, 116 medium scale
enterprises and 29 large scale enterprises. The dataset was sourced from the 2014 World Bank
Enterprise survey on Nigeria. The variables employed in this study as indicators of employment
generation include gross job creation, net job destruction and net job creation for sampled firms. The
non-parametric variance analysis that uses the locally-weighted scatterplot smoothing (LOWESS)
method proposed by Cleveland (1979) and modified by Neumark et. al (2008) was employed to
determine if small businesses are net creators or destroyers of jobs in Nigeria. Our result found that
MSMEs performed better than large firms in term of employment generation, with Small and
Medium size enterprises performing exceedingly. Empirical evidence emanating from this study
confirms the theoretical literature expounded by Birch (1979) which states that small businesses are
the most important source of employment generation in any economy. The policy implication of this
study is that any targeted intervention to reduce unemployment should focus MSMEs, as this study
as confirmed that small businesses are actually a net creator of jobs. Furthermore, MSMEs
development centres should be encouraged so as to stimulate MSMEs growth

Related studies