The Impact of Manufactured Imports on Manufacturing Sector Performance in Nigeria: Evidence from FMOLS and DOLS

Abstract

The development of the manufacturing sector in Nigeria has the potential to contribute meaningfully to the country’s growth, helping to diversify the economy away from the dominant oil sector. However, this sector has been beset by several challenges over the years. This article examines the influence of manufactured imports on the manufacturing sector’s performance in Nigeria using an annual dataset spanning the period from 1982 to 2023. The study employs both the Fully Modified Ordinary Least Squares (FMOLS) and the Dynamic Ordinary Least Squares (DOLS) techniques. The focus of past studies has often been on examining the impact of specific variables on the manufacturing sector’s performance, mainly the exchange rate and the interest rate. The findings of this study indicate that manufactured imports exerted a negative and significant impact on the performance of the manufacturing sector according to the FMOLS model. Furthermore, while exchange rate appreciation leads to an improvement in the manufacturing sector’s performance, the impact of the lending rate is negative. Trade openness is also shown to have a negative impact on the manufacturing sector’s performance. Consequently, the study recommends that monetary policy should be used to guide both the exchange rate and interest rate towards desired outcomes to mitigate their adverse effects on the manufacturing sector’s performance. In addition, there is a need for the provision of various forms of subsidies to the manufacturing sector to reduce the cost of production, thereby making locally manufactured goods more competitive with imported products.