MANUFACTURING AMID ECONOMIC VOLATILITY: THE ROLE OF OIL PRICES, EXCHANGE RATE, AND SUPPLY CHAIN DISRUPTIONS IN NIGERIA

Abstract (English)

This study examines the dynamic effects of oil price volatility, exchange rate fluctuations, government expenditure, inflation, and supply chain disruptions on manufacturing output in Nigeria. Using quarterly data from 2000Q1–2024Q1, the analysis applies the Augmented Dickey–Fuller (ADF) test to determine the order of integration, bounds testing to assess long-run relationships, and a Vector Error Correction Model (VECM) to capture both short- and long-run dynamics. Impulse response functions (IRFs) and forecast error variance decomposition (FEVD) are employed to evaluate the direction, persistence, and relative contributions of shocks. Results reveal a mix of I(0) and I(1) variables, validating the bounds testing approach. Findings confirm cointegration between manufacturing GDP and selected macroeconomic indicators, indicating a stable long-run relationship. Exchange rate shocks exert the strongest and most persistent negative effects, supporting the “contractionary devaluation” hypothesis. Supply chain disruptions emerge as intensifying structural constraints, while oil price volatility influences output mainly through indirect and interaction-based channels. Government expenditure and inflation play secondary roles, often with adverse effects. The study underscores the need for coordinated macroeconomic and structural policies to stabilise the exchange rate, strengthen supply chains, and enhance public investment efficiency, thereby sustaining manufacturing growth amid volatility.