This study focuses on the macroeconomic
implications of exchange rate fluctuation on manufacturing sector performance
in Nigeria between 1981 and 2016. Variables such as manufacturing capacity
utilisation, manufacturing value added, and manufacturing output are used to
proxy manufacturing sector performance while exchange rate was used as the
explanatory variable. Data were analyzed using the vector autoregression estimation
technique while the GARCH was used to determine exchange rate volatility. The
unit root results confirm that all the variables were stationary at first
difference, while the Johansen cointegration test confirms that long run
relationship exists between the variables employed in the study. Empirical
results confirm that exchange rate depreciation has a positive impact on
manufacturing output and manufacturing value added while it enhances
manufacturing capacity utilisation. It indicates that exchange rate fluctuation
restricts the performance of the manufacturing sector in Nigeria and hence has
a strong macroeconomic implication on the sector. Efforts should be targeted at
stimulating manufacturing output whenever there is depreciation of the domestic
currency to stabilize the sector’s performance.
classification numbers: F31, L16, F62.
Utilisation, Exchange Rate; Macroeconomic, Manufacturing, Utilisation; Nigeria.