Impact of Selected Macroeconomic Variables on the Industrial Sector in Nigeria

This study examined the impact of inflation, exchange rate, interest rate, credit to the private sector, and oil prices on Nigeria’s declining industrial sector, employing the ARDL methodology to analyze 43 years of annual data (1981-2023). The findings revealed that macroeconomic instability, particularly inflation and exchange rate volatility, exerts significant adverse effects on industrial performance. In the long run, inflation and exchange rate depreciation negatively impact industrial output, reflecting structural vulnerabilities such as import dependency, rising production costs, and eroded investor confidence. Conversely, oil prices demonstrate a positive relationship with the share of industrial sector, underscoring the dual role of oil revenues in providing fiscal liquidity while simultaneously exposing the economy to Dutch Disease effects, where resource dominance stifles diversification. Notably, credit to the private sector and lending rates showed counterintuitive or insignificant effects, suggesting inefficiencies in financial intermediation and limited access to productive financing for industrial firms. The error correction mechanism confirmed a robust long-run equilibrium, with a high adjustment speed (77%) restoring deviations annually, validating the model’s stability and reliability. It was therefore recommended that the Central Bank of Nigeria should prioritize inflation targeting frameworks to curb persistent inflationary pressures.