Impact of Exchange Rate Volatility on Nigerian Manufacturing Sector Performance (1986-2024)

This study examines the impact of exchange rate volatility on Nigerian manufacturing sector performance over 38 years (1986-2024), employing advanced econometric techniques, including GARCH models for volatility measurement and the ARDL bounds testing approach for long-run and short-run relationships. Using annual time series data, the study investigates how exchange rate fluctuations affect manufacturing sector output while controlling for inflation rate, interest rate, trade openness, GDP growth rate, oil prices, government expenditure, and capacity utilization. The findings reveal that exchange rate volatility exerts significant negative effects on manufacturing sector performance in both the short-run and long-run, with a 1% increase in volatility associated with a 0.47% decline in manufacturing output. Control variables demonstrate differential impacts, with trade openness and capacity utilization positively influencing performance, while inflation and interest rates show adverse effects. The study contributes to the extant literature by providing robust empirical evidence on the exchange rate-manufacturing nexus in resource-dependent economies and offers policy recommendations for exchange rate stabilization, industrial diversification, and monetary policy coordination to enhance manufacturing competitiveness in Nigeria.