Evaluation of the Impact of Exchange Rate Policy on Manufacturing Sector Output in Nigeria
DOI:
https://doi.org/10.64348/zije.2026320Keywords:
Exchange Rate, Balance of payment, Inflation Rate, Interest Rate, Foreign Direct Investment, Foreign Exchange Reserves, Manufacturing sector performanceAbstract
Globally, exchange rate policy plays crucial role in both money market and real sector activities owing to their impact on the value of domestic currency. This study evaluates the impact of exchange rate policy on manufacturing sector performance in Nigeria, spanning 1981 to 2023. The Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) regression was used as technique of analysis. The results revealed that balance of payment (BOP) had significant negative impact on manufacturing sector performance, the lagged FDI (-1) had significant negative impact on manufacturing sector performance. The results also revealed that short-run exchange rate (EXR) had insignificant positive impact on manufacturing sector performance and insignificantly negative impact in the long-run. Also, foreign exchange reserves (FXR) in the shot-run and long-run had significant positive impact on manufacturing performance. It was found that inflation rate (INF), both in the short-run and long-run, had insignificant negative impact on the performance of manufacturing sector. The results showed that in both short-run and long-run interest rate (INT) had significant negative effect on manufacturing sector performance. Also, the results showed that in both short-run and long-run, exchange rate implementation regime (EXP) proxied by dummy variable, had insignificant positive impact on manufacturing sector performance. The results also revealed that in the short-run, exchange rate implementation status (EXS) dummy variable, had insignificant negative impact on the performance of manufacturing sector, while in the long-run it had significant negative impact on manufacturing sector performance. The study concluded that exchange rate policy significantly impacts manufacturing sector performance and recommended among others that government should promote export diversification by providing incentives that encourage a wide range of manufacturing sector firms and export-related products, they should mandate the deposit money banks through the Central bank to maintain a single digit interest rate to boost investors’ confidence on the economy, government should channel a portion of foreign reserves in providing financial supports, subsidies and export incentives to manufacturers, effective import substitution policy and implement effective exchange rate management policy to avoid exchange rate swings and encourage manufacturing sector investment stability in order to raise the level of performance of the manufacturing sector.
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