EXPLORING THE NEXUS BETWEEN EXCHANGE RATE VOLATILITY AND MANUFACTURING SECTOR OUTPUT IN NIGERIA: A QUANTITATIVE ANALYSIS

Abstract

This study examined the impact of exchange rate volatility on the manufacturing sector output between 1980 and 2021. The manufacturing sector is one of the sectors whose success or failure depends on the stability of exchange rate. This is because its depreciation or appreciation has negative or positive repercussions on all the sectors of the economy, especially the manufacturing sector. Using the Autoregressive Distributed Lag Model, the study examined the short run and long run relationship between exchange rate volatility and manufacturing sector output in Nigeria. The estimated results revealed that exchange rate volatility had negative and statistically significant impact on manufacturing sector output in Nigeria. The study concluded that exchange rate volatility has negative impact on manufacturing sector output in Nigeria due to the dependence of the manufacturing sector on imported raw materials and machines. The study, therefore, recommended amongst others that manufacturers should explore diversifying their sources of inputs to include a mixture of local content which can help reduce vulnerability to currency fluctuations and enhance stability in the production process. This could help mitigate the negative effects and enhance the resilience of the manufacturing sector.