IMPACT OF MONETARY POLICY RATE’S INFLUENCE ON MANUFACTURING SECTOR PRODUCTIVITY IN A DEVELOPING ECONOMY
Purpose: This paper investigates the relationship between monetary policy variables and Nigeria's manufacturing sector performance from 1980 to 2024. It aims to determine how money supply, Treasury bill rates, monetary policy rate (MPR), and inflation influence manufacturing output over both the short and long run in Nigeria's developing economy context. The extended time frame captures major policy shifts, including the transition to a floating exchange rate regime and periods of economic reform. Methodology: The study employs an empirical framework with manufacturing output as the dependent variable. The Augmented Dickey-Fuller test revealed variables with mixed integration orders, prompting adoption of the Autoregressive Distributed Lag (ARDL) methodology. This approach assesses contemporaneous impacts while establishing long-run associations among variables. The bounds test confirmed consistent long-term connections among all examined factors. Post-estimation diagnostics, including tests for serial correlation and heteroscedasticity, validate the reliability of the estimated model. Findings: Long-run estimations show interest rates and money supply substantially enhance manufacturing performance, while MPR and inflation demonstrate limited adverse effects, aligning with patterns in other developing economies. Short-term dynamics present contrasting results, with interest rates and money supply showing negative influences and inflation revealing inconsistent patterns. The bounds test verified consistent long-term connections among all factors. These contrasting short-run versus long-run effects underscore the importance of policy timing and the need for careful management of adjustment periods. Unique Contribution: Theoretically, this study extends the ARDL methodology application to Nigeria's manufacturing sector over four decades, providing robust evidence on monetary policy transmission in a developing economy. For policy, results highlight the Central Bank of Nigeria's need for a dual-focused strategy: calibrated liquidity provision through money supply management alongside decisive inflation targeting. This balanced approach enables manufacturing resilience and sustained growth. The findings challenge the assumption that monetary policy tools operate uniformly across time horizons, revealing instead that their effects differ markedly between short-run adjustments and long-run equilibrium. In practice, findings equip manufacturing stakeholders with insights to anticipate how monetary policy shifts affect production decisions, investment planning, and operational costs. The contrasting short-run versus long-run effects also provide policymakers with clearer guidance on managing adjustment periods during monetary reforms.
Monetary Policy, Manufacturing Sector, Nigeria, ARDL, Inflation, Interest Rates.