Monetary policy and manufacturing capacity utilization:­ further evidence from Nigeria

Abstract

This study investigates the nexus between monetary policy and manufacturingcapacity utilization in Nigeria for the 1980-2014 period, using anerror-correctionmodelling approach. The results reveal that both current and past values of­lending­rate­adversely­affect­manufacturing­performance,­but­­manufacturing­responds­positively­to­the­current­period’s­banking­credit,­confirming­that­policy to enhance access to funds can stimulate investment in manufacturingsub-sector in Nigeria. Real exchange rate shows mixed performance; the currentexchange­rate­has­a­ negative­but­insignificant­effect,­whereas­the­impact­of­the­one-period­lagged­value­was­positive­and­significant­at­ 5%.­Broad­money­supply­positively­and­significantly­influences­manufacturing.­The­error-correction­term­is­ significant­and­correctly­signed.­Further,­the­variance­decomposition­shows­shock in monetary policy phenomena,explains­relatively­significant­variations­in­manufacturing performance. This study recommends that monetary authoritiesshould implement policies in line with the structure of the economy to enhancecontribution­of­manufacturing­sector­to­overall­economic­growth.­Effort­should­be­made­to­enhance­the­flow­of­credit­to­the­economy,­while­adopting­effective­exchange rate management in a stable macroeconomic environment to boostindustrial production.