Exchange rate volatility and industrial output growth in Nigeria

Oseni Isiaq O. (), Adekunle Ibrahim A. () and Alabi Mumeen O. ()
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Oseni Isiaq O.: Department of Economics, Faculty of Social Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria
Adekunle Ibrahim A.: Department of Economics, Faculty of Social Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria
Alabi Mumeen O.: Department of Economics, Faculty of Social Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria

Journal of Economics and Management, 2019, vol. 38, issue 4, 129-156

Abstract: Aim/purpose – This paper examines the relationship between exchange rate volatility and industrial output growth in Nigeria. In spite of the massive revenue emanating from oil wealth, Nigeria has wallowed in intergenerational poverty due to the inability to grow its industrial sector. The dilemma of exchange rate allowed growth of the industrial sector to become enormous. As such, this paper attempts a quantitative analysis of industrial output growth in Nigeria as predicted by an exchange rate volatility using a time series data from the exchange rate and the industry value added from 1986 through 2017. Design/methodology/approach – This paper adopts a quantitative analysis of exchange rate volatility as a predictor of changes in industrial output in Nigeria. Monthly Data on exchange rate from 1986 through 2017 were first analysed to show for their clustering behaviour. Thus, ascertaining whether they are volatile or not. The study employs AR(k)-EGARCH(p,q) models for the calculation of volatility in the growth rate of nominal exchange rates. Then the paper adopts the Auto-Regressive Distributed Lag Approach to account for the long-run and short-run dynamics of industrial output in Nigeria as induced by volatility in the exchange rate for different regimes under the scope. Findings – The findings reveal that the real exchange rate volatility determines industrial production as well as availability of foreign exchange increments arising from the various export drives contributing tremendously to the increase in the industrial output in Nigeria. It is further revealed that the capacity utilisation ratio was low. Research implications/limitations – Established evidence of low capacity utilisation may be due to the epileptic power supply, inadequate technological know-how. As such, the government should maintain a flexible exchange rate system to maximally harness the benefits of growth emanating from the industrial sector. Originality/value/contribution – The paper specifically offers an experimental proof to the underlying relationship between industrial output and exchange rate volatility in Nigeria. Previous studies reviewed in the literature have mostly focused on the growth effect of the exchange rate neglecting the important nexus it shares with the industrial sector (a bedrock of sustainable development).

Keywords: Exchange Rate Volatility; industrial output; GARCH; ARDL; Nigeria (search for similar items in EconPapers)
JEL-codes: C32 F43 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:jecman:v:38:y:2019:i:4:p:129-156:n:2

DOI: 10.22367/jem.2019.38.07

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