Climate change, macroeconomic stability, institutions, and sectoral resilience in Nigeria’s agriculture and industry sectors

Climate change and macroeconomic volatility pose significant threats to Nigeria’s economic transformation, particularly in the agricultural and industrial sectors, which are crucial to its economic development. This study examines the short- and long-term effects of climate variables (temperature, emissions), macroeconomic conditions (exchange rate, resource rents), and institutional quality on Nigeria’s real sector performance between 1990 and 2021. The analysis is based on a theoretical framework that combines institutional, environmental, macroeconomic and the resilience and adaptive capacity paradigm. We employ Autoregressive Distributed Lag (ARDL) and Error Correction Models (ECM) to estimate dynamic effects, complemented by Dynamic Ordinary Least Squares (DOLS) and Granger causality analysis. The results confirm that climate indicators, particularly CO2 emissions, have significant and asymmetric effects on agricultural output, with lagged CO2 effects showing temporary gains and contemporaneous shocks exerting negative impacts. In contrast, industrial sector performance is less sensitive to climate variables in the short term, with the exchange rate and temperature exhibiting positive long-term associations. Institutional quality consistently has a favourable short-term effect on both sectors, although long-term links are weaker in the industry, underscoring the role of governance in promoting adaptive economic performance. Granger causality results provide evidence of unidirectional and bidirectional relationships among sectoral outputs and climate-macroeconomic variables. These findings suggest that climate-macroeconomic shocks affect Nigeria’s sectors with distinct timing and intensity, requiring adaptive, sector-specific governance. Based on these findings, the study offers policy recommendations to mitigate vulnerabilities and promote climate-resilient economic transformation in Nigeria through institutional reform, input cost buffers, and green innovation, thereby contributing to sustainable economic transformation and the achievement of the SDGs.