Financial System Stability and Manufacturing Performance in Nigeria

Abstract

This study investigates the relationship between the three measures of manufacturing performance [manufacturing production growth rate (MPGR), share of manufacturing in GDP (SMGDP), capacity utilization rate (CUR)] and the variables of financial system stability [exchange rate (EXR), fiscal deficit (FD), lending rate (LR), saving rate (SR), consumer price index (CPI), bank loan to manufacturing sector (BLM)]. The study uses Johansen cointegration and Parsimonious error correction model as the estimation techniques. Findings from the results of the study reveals that there is a long-run relationship between the three measures of manufacturing performance (i.e. MPGR, SMGDP and CUR) and the variables of financial system stability in Nigeria during the period under review. Also, consumer price index (CPI) and lending rate (LR) have negative and significant impacts on manufacturing production growth rate (MPGR) in Nigeria. In addition, fiscal deficit (FD) and lending rate (LR) have significant and negative effect on share of manufacturing in GDP (SMGDP). Lastly, banks loan to manufacturing sector (BLM) has significant negative effect on capacity utilization rate (CUR) while exchange rate (EXR) has positive and significant impact on capacity utilization rate (CUR).