IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 10 NO. 2 2025
DOI: 10.56201/ijefm.v10.no2.2025.pg78.98

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Effect of Selected Macroeconomic Variables on Manufacturing Sector Output in Nigeria

JUSTINE, David

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Abstract

This study examines the effect of selected macroeconomic variables—exchange rate, interest rate, money supply, unemployment rate, and inflation rate—on the manufacturing sector output in Nigeria. The study employs an ex post facto research design and utilizes the Autoregressive Distributed Lag (ARDL) model for regression analysis to explore both short-run and long-run dynamics. The findings reveal that, in the long run, the exchange rate has a significant positive effect on manufacturing sector output in Nigeria, indicating that exchange rate stability fosters industrial growth. Conversely, inflation rate, money supply, and unemployment rate were found to have no significant effect on manufacturing output in the long term. Additionally, the interest rate was found to have a significant negative effect on industrial sector output, suggesting that high borrowing costs deter investment in the manufacturing sector. In the short run, the exchange rate, money supply, and unemployment rate were statistically significant in influencing industrial output, while the inflation rate and interest rate did not show any significant impact. Based on these findings, the study recommends that the Nigerian government should focus on diversifying the economy to reduce dependency on oil and mitigate the impact of external shocks, such as global oil price fluctuations. The government should also encourage the development of financial markets to support industrial growth, promote public-private partnerships (PPPs) for skills development in the manufacturing sector, and reduce interest rates to improve access to affordable financing, especially for small and medium-sized enterprises (SMEs). Furthermore, introducing foreign exchange hedging mechanisms could help manufacturers manage risks related to exchange rate volatility.

keywords:

ARDL Model, Exchange Rate, Interest Rate, Inflation Rate, Macroeconomic variables, Money Supply, Unemployment Rate, Manufacturing Sector Output

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