Interest Rate Spread, Exchange Rate and Manufacturing Output in Nigeria

NWAFOR, Michael C (2020) Interest Rate Spread, Exchange Rate and Manufacturing Output in Nigeria. GOUni Journal of Faculty of Management and Social Sciences, 10 (1). pp. 81-109. ISSN 2550-7265

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This study examines the impact of interest rate spread and exchange rate volatility on manufacturing output in Nigeria between the periods of 1981-2020. Secondary data were collected from the CBN statistical bulletin, 2020 and World Bank. In the regression model estimated, the dependent variable was manufacturing output (MQ) while the explanatory variables used include exchange rate (EXCHT), interest rate spread (IRS), inflation (INF), foreign direct investment (FDI), credit to private sector (CPS) and government capital expenditure (GCAP). In order to reduce the problem of stationarity and structural breaks associated with the time series data, the model was logged. The work adopted the Ordinary Least Squares (OLS) method of estimation and employed Newey-West-HAC to correct heteroskedasticity and autocorrelation problems intrinsically. Unit root test was carried out to check if the variables were stationary and the ADF test showed that there exists a cointegrating or long run relationship between the dependent and explanatory variables. Ramsey RESET tests was also carried out. The result revealed that, despite being significant, a negative relationship exists between foreign direct investment and manufacturing output. Consequently, the work recommends that government should adopt policies that prevents crowding out effect in the economy as well as encourage the consumption of locally made products. Also, the government must embark on a massive overhaul of our morbid physical infrastructure (power, road, rail and ports) if we are to achieve a sustainable economy and a virile manufacturing sector. The findings also show that government capital expenditure is significant but negatively related to capital formation. In view of this, the study recommends that government should adopt effective measures, policies and programs that foster accountability and transparency in the method of spending public funds in Nigeria.

Item Type: Article
Subjects: H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Management and Social Sciences
Depositing User: mrs chioma hannah
Date Deposited: 07 Feb 2023 09:10
Last Modified: 07 Feb 2023 09:10

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