Currency Devaluation and Manufacturing Output Growth in Nigeria

Abstract

This study examines the impact of currency devaluation on manufacturing output growth in Nigeria between 1980 and 2014. It employs Augmented Dickey Fuller for stationarity test, Engel-Granger cointegration for long-run relationship, ordinary least square for long-run estimate and Granger causality test for causal relationships. The findings reveal that although all the variables are stationary at first difference, a long-run relationship exists between the variables. It further shows that all the variables except import exert positive effect on manufacturing output growth. The result suggests the need for currency appreciation rather than depreciation as the sector depends heavily on the importation of equipment’s, machineries as well as most of its raw materials. The causality test shows that there is a unidirectional causality running from, exchange rate, import and Credit to Private Sector to manufacturing output. The study therefore concludes that both monetary and exchange rate policies in Nigeria were not successful in achieving the growth of the manufacturing sector in Nigeria as expected. Thus, there is the need for the review of the current exchange rate policy towards appreciation and a monetary discipline that will restore the value of the naira.

Keywords: Exchange rate, devaluation, inflation rate, manufacturing outputs.