Annual Forum Papers

Institutional Framework, Interest Rate Policy and the Nigerian Manufacturing Sub-sector

  • Year: 2004
  • Publication Author(s): Babasanmi Babatope-Obasa; Michael Adebayo Adebiyi
  • Countries and Regions: Southern African Development Community (SADC)

In this study, we set out to empirically investigate the impact of interest rates and other macroeconomic factors on manufacturing performance in Nigeria using co-integration and an error correction mechanism (ECM) technique with annual time series covering the period between 1970 and 2002. Some statistical tools are employed to explore the relationship between these variables. The analysis starts with examining stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test. Then, the study estimates error correction mechanism (ECM) model.From the error correction model, several interesting conclusions are drawn from the study. First, interest rate spread and government deficit financing have negative impact on the growth of manufacturing sub-sector in Nigeria. Secondly, the study empirically reveals that liberalization of the Nigerian economy has promoted manufacturing growth between 1970 and 2002. Lastly, the findings are further reinforced by the presence of a long-term equilibrium relationship, as evidenced by the co-integration, and stability in the model.