IMPACT OF INFLATION ON MANUFACTURING SECTOR OUTPUTIN NIGERIA (1986-2024)

Abstract

This research explores the impact of inflation on manufacturing sector output in Nigeria from 1986 to 2024, employing the Autoregressive Distributed Lag (ARDL) model. Findings indicate the presence of a long-term equilibrium relationship among the variables examined. In the long run, both inflation and interest rates exert a statistically significant negative effect on manufacturing output, whereas credit allocation targeted at the manufacturing sector demonstrates a positive and significant contribution. In the short run, the error correction term (ECMt) is negative and statistically meaningful, confirming model stability. Moreover, inflation rate (INF) continues to have a dampening effect on Manufacturing Sector Output (MSO). Conversely, interest rates (INT) and sectoral allocation of credit to manufacturing sector (SCM) positively affect MSO in the short term. Based on these results, it is recommended that the Central Bank of Nigeria (CBN) implement firm monetary policies to curb inflation through strategic interest rate adjustments and enhanced control over money supply. Furthermore, the Ministry of Finance should adopt fiscal strategies aimed at price stabilization by lowering production costs—such as offering subsidies for energy and essential raw materials.