IMPACT OF EXCHANGE RATE ON MANUFACTURING SECTOR PERFORMANCE IN NIGERIA

Authors

  • Alimo Anthony Department of Economics, Nnamdi Azikiwe University, Awka
  • Uzonwanne M. C Department of Economics, Nnamdi Azikiwe University, Awka Nigeria
  • Okeyika Kenechukwu Department of Economics, Nnamdi Azikiwe University, Awka Nigeria

Keywords:

Exchange rate, Manufacturing sector, Output, Employment, Nigeria

Abstract

The manufacturing sector plays a catalytic role in modern economies, offering dynamic 
benefits essential for economic transformation. However, in Nigeria, its performance remains 
relatively low compared to other regions, resulting in limited contributions to employment and 
output. This underperformance is largely attributed to political, social, and economic 
instability. The study examines the impact of exchange rate on key manufacturing sector 
performance indicators, specifically output growth and employment in Nigeria. Using the 
Auto-Regressive Distributed Lag (ARDL) model, the study identifies both long-run and short
run relationships among the variables. Data was obtained from the CBN Statistical Bulletin 
(2022) and World Bank Indicators (2022), and the analysis incorporated the Marshall-Lerner 
condition and the J-curve effect. Findings reveal that the real exchange rate has a long-run 
relationship with manufacturing output growth. However, both real exchange rate depreciation 
and inflation negatively affect manufacturing output and employment. In contrast, gross fixed 
capital formation (GFCF), labour force, balance of trade, and foreign direct investment (FDI) 
significantly and positively impact output growth in the long run. The study recommends 
targeted policies to stimulate manufacturing output in response to currency depreciation. For 
sustainable growth, policymakers should prioritize exchange rate and inflation stability, 
alongside investments in infrastructure, skilled labour, and FDI incentives. These measures are 
crucial to boosting productivity, enhancing competitiveness, and promoting inclusive 
economic growth and poverty reduction in Nigeria. 

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Published

2025-05-26