Impact of New Business Density on Economic Growth in Nigeria: Evidence from the Autoregressive Distributed Lag (Ardl) Approach
Tongpan Godwill Gu’ar *
Department of General Studies, School of Legal and General Studies, Plateau State Polytechnic Barkin-Ladi, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Entrepreneurship is gaining increasing importance as a major contributor to economic development because it involves business creation, innovation and job creation. Despite the various entrepreneurship-promotion initiatives undertaken in Nigeria, the role of formal business start-ups in economic growth remains poorly understood. This study used the Autoregressive Distributed Lag (ARDL) model to empirically examine the effect of new business density on economic growth in Nigeria between 2004 and 2025. Data were sourced from the World Development Indicators (WDI). The results showed that, in the long run, new business density had a positive but statistically insignificant relationship with economic growth, whereas, in the short run, its negative effect on economic growth was statistically significant. Similarly, the literacy rate had a negative and statistically significant long-run effect on economic growth but a positive and significant lagged effect in the short run, suggesting that the growth-enhancing benefits of literacy materialise over time. The study concludes that, to promote sustainable economic growth, simply encouraging businesses to register is insufficient; attention should also be given to the structural challenges faced by new businesses and the quality of human capital. The study suggests improving the entrepreneurial ecosystem by easing business registration procedures, increasing access to business support services and providing low-cost financing for start-ups through the Federal Ministry of Industry, Trade and Investment, the Corporate Affairs Commission, the Small and Medium Enterprises Development Agency of Nigeria and the Bank of Industry. It also calls on the Federal Ministry of Education, the National Universities Commission, the National Board for Technical Education and the National Commission for Colleges of Education to strengthen entrepreneurship education and skills development in order to enhance the productive contribution of human capital to economic growth.
Keywords: New business density, economic growth, entrepreneurship, autoregressive distributed lag, bounds cointegration, literacy rate, business formation, human capital