The Effect of Exchange Rate on the Performance of the Manufacturing Sector

Abstract

Peter Ayodeji Adeoye

This work examines the effect of exchange rates on the performance of the manufacturing sector. Yearly data were used from 1996 to 2020. The Auto Regressive Distributed Lag (ARDL) was used to analyze the data, and the yearly data were sourced from the World Development Indicator (WDI) and the Nigeria Bureau of Statistics. This research work considers exchange rates and some selected product classifications to account for the rate of performance of the manufacturing sector. Based on the ARDL approach, a test was carried out on each dependent variable and the independent variable to check the long and short-run regression findings for the coefficient of the lagged values of the dependent and independent variables. Some diagnostic tests like the serial correlation test, heteroskedasticity test, and stability test were also carried out on the variables. From the results obtained, export values of clothing and textiles were negatively statistically significant, import inputs of food and beverages were also negatively statistically significant, total manufacturing output was negatively statistically significant, while value added of medium and high-tech products was positively significant in explaining manufacturing performance. This means that the exchange rate has both negative and positive effects on manufacturing performance.

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