AN EVALUATION OF THE IMPACT OF EXCHANGE RATE MANAGEMENT ON MANUFACTURING SECTOR PERFORMANCE IN NIGERIA

Abstract

This study investigates the impact of exchange rate management on the performance of the manufacturing sector in Nigeria from 1970 to 2023, employing the Autoregressive Distributed Lag (ARDL) model. The primary objective is to measure the relationships between manufacturing value-added (MVA), exchange rate (EXR), inflation rate (INF), interest rate (INT), balance of payment (BOP), and crude oil revenue (COR). The results reveal that the exchange rate has a significant negative impact on manufacturing sector performance in both the short run and long run, with coefficients of -0.0894 (p = 0.0436) and -0.0284 (p = 0.0168) respectively. Inflation rate also shows a significant negative short run impact with a coefficient of -0.0989 (p = 0.0421). Conversely, crude oil revenue positively influences the manufacturing sector, with short run and long run coefficients of 0.0413 (p = 0.0030) and 1.885 (p = 0.000) respectively. The error correction term (ECT) is significant at 5% level of significance (p = 0.0000), indicating a high speed of adjustment (66%) towards long run equilibrium. These findings underscore the critical role of exchange rate stability, inflation control, and effective utilization of crude oil revenue in enhancing the performance of Nigeria’s manufacturing sector. The study recommends implementing policies to stabilize the exchange rate, such as maintaining adequate foreign exchange reserves and adopting a more flexible exchange rate regime to reduce exchange rate volatility in order to enhance the performance of Nigeria’s manufacturing sector.