Exchange Rate and Manufacturing Output in Nigeria: AnAutoregressive Distributed Lag (ARDL) Model Approach
Article Sidebar
Main Article Content
Abstract
This study examined the ef ects of exchange rate on manufacturing output in Nigeria, usingannual data covering the period of 1985-2022. Specifically, it ascertained the existenceofshort and long run relationship between exchange rate and manufacturing output growthinNigeria; and determines the causal relations between exchange rate and manufacturingoutput growth in Nigeria. It employed Autoregressive Distributed Lag (ARDL) model toexamine the long run relationship existing among the variables. The key findings of thisstudyare: exchange rate has a positive and statistically significant relationship with manufacturingoutput in Nigeria both in the short and long run. The ARDL model long run bounds test showsthe existence of a long run association among the variables under investigation, whilethegranger causality test indicates the existence of a unidirectional causality betweenexchangerate and manufacturing output in Nigeria with causality running fromexchangeratetomanufacturing output. The study recommends that there is need for relevant authoritiestoprioritize the design and implementation of a robust exchange rate management frameworkthat not only guarantees exchange rate stability but also creates an enabling environment forthe advancement of manufacturing activities. This will include and not limited tosynergyamong the central banks, manufacturing stakeholders and policy authorities, withastrongemphasis on instituting supportive measures that enhance manufacturing capabilities, boostproductivity, and foster sustainable growth in agricultural output. Finally, regular monitoringand adaptive policy adjustments are imperatives to achieving the objectives of exchangeratestability and the promotion of a thriving manufacturing sector in Nigeria.
Downloads
Article Details
Section
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Share
References
1. Agenor, P. R. (1991). Output, devaluation and the real exchange rate in developing countries. Weltwirtschaftliches Archiv, 127(1), 18–41.
2. Ahmed, H. I., & Zarma, A. (1997). The impact of the parallel market on the stability of the exchange rate: Evidence from Nigeria. NDIC Quarterly Publication, 7(2), 42–61.
3. Aliyu, S. R. U. (2011). Impact of oil price shock and exchange rate volatility on economic growth in Nigeria: An empirical investigation (MPRAPaper No. 16319). University Library of Munich. (Revised June 10, 2009)
4. Asher, O. J. (2012). The impact of exchange rate fluctuation on Nigeria’s economic growth (1980–2010) [Unpublished bachelor’s thesis, Caritas University].
5. Bakare, A. S. (2011). The consequences of foreign exchange rate reforms on the performance of private domestic investment in Nigeria. International Journal of Economics and Management Sciences, 1(1), 25–31.
6. Benson, U. O., & Victor, E. O. (2012). Real exchange rate and macroeconomic performance: Testing the Balassa–Samuelson hypothesis in Nigeria. International Journal of Economics and Finance, 4(2), 127–134.
7. Campbell, O. A. (2010). Foreign exchange market and monetary management in Nigeria. Journal of Emerging Trends in Economics and Management Sciences (JETEMS), 1(2), 102–106.
8. Chang, L. L., & Tan, H. B. (2008). Exchange rate risk and macroeconomic fundamentals: Evidence from Southeast Asian economies. International Research Journal of Finance and Economics, 16(1), 88–99.
9. Dhasmana, A. (2015). Transmission of real exchange rate changes to the manufacturing sector: The role of financial access. International Economics, 143, 48–69.
10. Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057–1072.
11. Domac, İ. (1977). Are devaluations contractionary? Evidence from Turkey. Journal of Economic Development, 22(2), 145–163.
12. Eichengreen, B., & Leblang, D. (2003). Exchange rates and cohesion: Historical perspectives and political economy considerations. Journal of Common Market Studies, 41(5), 797–822.
13. Eme, O. A., & Johnson, A. A. (2012). Effect of exchange rate movements on economic growth in Nigeria. CBN Journal of Applied Statistics, 2(2), 1–28.
14. Ezie, O., Sulaiman, L. A., & Abdelrasaq, I. (2016). Exchange rate and the manufacturing sector performance in Nigeria: An empirical investigation. Journal of Economics and Sustainable Development, 7(21), 95–102.
15. Fakiyesi, O. (2005). Issues in money, finance and economic management. University Press.
16. Fleming, J. M. (1962). Domestic financial policies under fixed and floating exchange rates. IMF Staff Papers, 9(3), 369–379.
17. Gylfason, T., & Schmid, M. (1983). Does devaluation cause stagflation? Canadian Journal of Economics, 16(4), 641–654.
18. Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill/Irwin.
19. Hansen, A. H. (1953). A guide to Keynes. McGraw-Hill.
20. Hicks, J. R. (1937). Mr. Keynes and the “classics”: A suggested interpretation. Econometrica, 5(2), 147–159.
21. Irene, O. O., Obi, P., Ezenekwe, U., & Ukeje, S. (2020). Exchange rate volatility and manufacturing sector performance in Nigeria (1981–2018): A VAR approach. International Journal of Academic Research in Economics and Management Sciences, 9(1), 135–150.
22. Jongbo, O. C. (2014). The impact of real exchange rate fluctuation on industrial output in Nigeria. Journal of Policy and Development Studies, 9(1), 268–278.
23. Kamin, S. B., & Klau, M. (1998). Some multi-country evidence on the effects of real exchange rates on output (International Finance Discussion Paper No. 611). Board of Governors of the Federal Reserve System.
24. Kandil, M. (2004). Exchange rate fluctuation and economic activities in developing countries: Theory and evidence. Journal of Economic Development, 29(1), 85–155.
25. Mordi, M. C. (2006). Challenges of exchange rate volatility in economic management of Nigeria. In S. A. Okogbue (Ed.), The dynamics of exchange rate in Nigeria (pp. 17–25). CBN Bullion, 30(3).
26. Morley, S. A. (1992). On the effect of devaluation during stabilization programs in less-developed countries. Review of Economics and Statistics, 74(1), 21–27.
Mundell, R. A. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economic and Political Science, 29(4), 475–485.
Musa, Y., & Sanusi, J. A. (2013). Industrial output response to inflation and exchange rate in Nigeria: An empirical analysis. Journal of Economics and Sustainable Development, 4(20), 74–81.
Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: Application and interpretation. Journal of Statistical and Econometric Methods, 5(4), 63–91.
Obadan, M. I. (2002, April 6 & 13). The travails of the naira in the Nigerian foreign exchange market. Business Times.
Obaseki, P. J. (2001, February 7). Meeting the foreign exchange needs of the real sector of the Nigerian economy. Paper presented at the Central Bank of Nigeria Second Monetary Policy Forum on “Exchange rate determination and foreign exchange management in Nigeria.”
Odusola, A. F., & Akinlo, A. E. (2001). Output, inflation, and exchange rates in developing countries: An application to Nigeria. The Developing Economies, 30(2), 199–222.
Okigbo, P. M. (1993). Essays in public philosophy of development: Lectures on the structural adjustment programme (4th ed.). University Press.
Oloyede, J. A. (2002). Principles of international finance. Forthright Educational Publishers.
Onyeizugbe, C. U., & Umeagugesi, U. E. (2014). Exchange rate management and the survival of the industrial subsector of Nigeria (1990–2013). Global Journal of Management and Business Research, 14(10), 13–18.
Opaluwa, D., Umeh, J. C., & Abu, A. A. (2010). The effect of exchange rate fluctuations on the Nigerian manufacturing sector. African Journal of Business Management, 4(14), 2994–2998.
Otokini, A., Izekor, O. O., & Efobi, U. R. (2018). Exchange rate deregulation and manufacturing sector performance in Nigeria. Journal of Economics and Sustainable Development, 9(6), 92–102.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.
Rogers, J. H., & Wang, P. (1995). Output, inflation and stabilization in a small open economy: Evidence from Mexico. Journal of Development Economics, 46(2), 271–293.
Tams-Alasia, O. R., Olokoyo, F. O., Okoye, L. U., & Ejemeyovwi, J. O. (2018). Exchange rate deregulation and the performance of the manufacturing sector in Nigeria: A co-integration approach. Journal of Social and Management Sciences, 13(1), 45–59.
Ubok-Udom, E. U. (1999). Currency depreciation and domestic output growth in Nigeria: 1971–1995. The Nigerian Journal of Economic and Social Studies, 41(1), 31–44.
Ugwu, C. I., & Okereke, E. J. (2017). Exchange rate fluctuation and the performance of manufacturing firms in Nigeria (1986–2016). International Journal of Innovative Finance and Economics Research, 5(4), 83–90.
Yaqub, J. O. (2010). Exchange rate changes and output performance in Nigeria: A sectorial analysis. Pakistan Journal of Social Sciences, 7(5), 380–387.