Do fluctuations in exchange rate hinder non-oil export? An analysis of agriculture and manufacturing in Nigeria

Abstract

This study examines the effect of exchange rate fluctuation on non-oil export by focusing on both manufactured exports and agriculture exports in Nigeria between 1970 and 2019. The study employs the vector error correction framework, the impulse response and variance decomposition analyses to analyse data on agriculture exports, manufacturing exports, exchange rate, interest rate, and inflation rate. Findings suggest that long run relationship exists among the variables. The vector error correction analysis reveals that exchange rate depreciation positively impacts agriculture exports but negatively impacts manufacturing exports in Nigeria. However, both the impulse response and variance decomposition analyses confirm that exchange rate fluctuation has a higher significance on manufacturing exports than agriculture exports by accounting for the largest forecast error variance in manufacturing exports than in agriculture exports over the forecast horizon. We conclude that fluctuations in exchange rate significantly impact the non-oil exports in Nigeria. Hence, to enhance the non-oil exports, government could consider enhancing the local capacity to produce for exports by reducing tariffs for manufactured inputs. They can also set up modular mechanised farms for agriculture graduates and farmers to boost agriculture exports and stabilize the exchange rate.

Assessing the Impact of Trade Policies on Growth and Development of the Manufacturing and Agricultural Sectors in Nigeria

“…Also, import substitution can improve the manufacturing sector, as seen by the positive correlation between the manufacturing sector and import penetration (Amali and Ajayi 2022). Previously, Mesagan et al (2021) posited that import substitution strategies have been observed to have a detrimental effect on the manufacturing sector in the near term. The inverse correlation between domestic cotton production and the output of the textile industry demonstrates this.…”