Effect of Monetary Policy Changes on the Manufacturing Sector Value Added in Nigeria

Abstract

The application of appropriate monetary policy to supports the productive capacity of manufacturing firms is central in boasting the non-oil sector. Therefore, this paper analyses the effect of monetary policy changes on manufacturing sector value added in Nigeria for the period of thirty–eight years leaning on secondary data from 1986 to 2023. The annual time series data for the independent variables, proxied by broad money supply, monetary policy rate, credit to private sector and exchange rate were sourced from Central Bank of Nigeria Statistical bulletins. While data for the dependent variable represented by manufacturing sector value added was sourced from World Bank Development Indicator. Upon determination of the stochastic properties of the series using KPSS, the Auto–Regressive Distributed Lag models was utilized to analyse the data. The paper found the absence of long–run relationship between the monetary policy and the manufacturing sector value added in Nigeria. Secondly, the paper revealed that the broad money supply exerts positive effect on the manufacturing value added in Nigeria. Lastly, the paper established that monetary policy rate, credit to private sector and exchange rate negatively affects manufacturing value added in Nigeria. Consequently, the paper recommends that money supply and credit advances to the private sector must be made with caution and should be based on the productive capacity of the manufacturing sector. Similarly, the monetary policy rate should be efficiently regulated to reduce overburden of acquiring facilities on the manufacturers while the central bank should activate the bilateral currency swap agreement with Peoples Bank of China to ease importation of goods by manufacturers and stabilise the exchange rate.