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ABSTRACT
Since the adoption of exchange rate deregulation policy in Nigeria, the exchange rate, which is the price of domestic currency in terms of foreign currency, has become so volatile. The study, thus undertakes an empirical analysis to examine the impact of exchange rates on the performance of the manufacturing sector in Nigeria between 1981 - 2020 using Ordinary least square (OLS) regression method. The Unit Root test, Johansen co-integration test, and Error Correction Model (ECM) were used to test for stationarity, long-run relationship, and the short and long run equilibrium relationship respectively. The empirical results of the study, show that exchange rate has a negative impact on the Nigerian manufacturing sector. By implication an increase in the level of exchange rate would reduce manufacturing sector performance in Nigeria. It was also ascertained from the results that inflation rates(INF), and imports(IMP) have a negative significant relationship with the sector, while foreign direct investment (FDI) and exports(EXP) have a positive relationship with the Nigerian manufacturing sector. The study thus suggests that change in exchange rate management strategy should be allowed to run a reasonable course of time. Jettisoning strategies at will and on frequent basis has implication for exchange rate and obvious consequence for a sector that depends on foreign inputs. More so, manufacturing activities should be encouraged by government by giving incentives and subsides to local manufacturers and improving the technological and infrastructural development so as to increase the sector’s contribution to gross domestic product and employment within the country.
