ANOTHER LOOK AT THE EXCHANGE RATE FLUCTUATIONS ON REAL SECTOR PRODUCTIVITY IN NIGERIA

Abstract

This study examines the effects of exchange rate fluctuations on real sector productivity in Nigeria, focusing on the agricultural and industrial sectors over the period 1991–2024. The study is motivated by persistent exchange rate instability and inconclusive empirical evidence on its implications for sectoral productivity. The study employs the Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL (NARDL) techniques to capture both dynamic and asymmetric relationships between exchange rate movements and sectoral productivity, following unit root and bounds tests for cointegration. The results reveal stable long-run relationships between exchange rate movements and sectoral productivity. Exchange rate depreciation has a positive and significant long-run effect on agricultural and industrial productivity, with asymmetric effects more pronounced in the industrial sector. Short-run exchange rate effects are largely insignificant, reflecting adjustment costs and delayed investment responses. The study concludes that exchange rate fluctuations influence real sector productivity mainly through long-run and asymmetric channels. It therefore recommends prioritising exchange rate stability and policy consistency, alongside sector-specific measures to strengthen domestic productive capacity and reduce import dependence for sustainable productivity growth in Nigeria.