Authors:
Chioma Chidinma, George-Anokwuru, Obayori, Joseph Bidemi and Oriji, Chimekwa Esther |
Abstract:
The study empirically investigated the impact of exchange rate on manufacturing sector output in Nigeria. Annual time series covering the period between 1980 and 2016 was collected for the study. The variables that were employed to explore the relationship between exchange rate and manufacturing sub-sector output are; manufacturing production output, exchange rate, manufacturing export and interest rate. The method utilized was the Error Correction Mechanism (ECM). Meanwhile, a unit root test of stationarity and co-integration test for long-run equilibrium relationship preceded the ECM. The result of the ADF unit root test and Johansen co-integration test indicated that all the variables were stationary and indeed co-integrated. From the parsimonious error correction mechanism result, the following conclusions were drawn; the R2 is 61%, meaning that dynamic model is a good fit. Exchange rate and interest rate were negatively related with manufacturing sub-sector output in Nigeria. While manufacturing export has a positive relationship with manufacturing sector output. The result showed that decrease in manufacturing sector output is a reflection of unstable exchange rate and high interest rate. Based on these findings, the study recommend that government should formulate and implement monetary policy that aim at reducing the rate of interest to the manufacturing sub-sector and favourable exchange rate policy in order to attain a viable manufacturing sub-sector |
