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The Effect of Exchange Rate Fluctuation on the Performance of the Manufacturing Sector in Nigeria (1990-2020)

Oyedepo Elizabeth Omolola*, Rasaki G.M, Addo G.O

This study examined the effects of exchange rate fluctuation on Nigeria's manufacturing sector for the period between 1990 to 2020. Annual time series data were obtained from world development indicators and central bank of Nigeria statistical bulletin. Autoregressive Distributed Lag model (ARDL) was employed for the data analysis and the long and short run forms provided optimal estimates of the co-integrating regression. Explanatory variables specified for the model were Manufacturing Capacity Utilization (MACU), Exports (EXP), Raw Material Imports (IMP), Exchange Rate Fluctuations (EXRF), Exchange Rate (EXCR), Interest rate (INT) and Inflation Rate (INFR). The results of the analysis revealed that the model was of good fit with an adjusted R² value of 96%. The ARDL model revealed a long run relationship among the variables and further reveals that (EXRF) and (IMP) had a significant negative effect on manufacturing output in Nigeria. MACU on the other hand had significant positive relationship with MGDP. In the short run, EXRF, IMP, INT and INFR had significant negative relationship with MGDP. The study concludes that exchange rate fluctuation has significant impact on MGDP in Nigeria. Recommendations from the study are that the government should put in policies that can help checkmate the fluctuations in the Nigerian exchange rate system. Import restrictions should be placed on domestically available raw materials and facilities that can increase the capacity utilization of the manufacturing sector should be provided. This will go a long way to boost the manufacturing sector output in Nigeria and also encourage international competitiveness.