FOREIGN EXCHANGE RATE FLUCTUATIONS AND INDUSTRIAL OUTPUT PERFORMANCE IN NIGERIA

This study investigated the impact of exchange rate fluctuations on the performance of Nigeria's industrial sector; purchasing power parity theory was annexed, using the techniques of time series method. The study makes use of (annual) time series datasets on the value added in industrial output (a performance metric for the industrial sector), the exchange rates between Naira and dollars and Naira and pounds sterling, foreign exchange supply and the rate of inflation for the 28 years (1996 - 2023). The study empirical analysis revealed that exchange rate between Naira and Dollar exerted significant and favourable effect on industrial output (0.3% and p-value 0.0211). This suggests that an increase in Naira units relative to US dollar units (i.e. appreciation) has every possibility to enhance the performance of the industrial sector. However, fluctuation in exchange rate between Naira and Pound Sterling was found to have adverse effect on industrial performance (-0.049 and p-value 0.0178). This suggests that a decrease in the Naira's value relative to the Pound Sterling may be detrimental to industrial sector performance, such that shortage of foreign exchange supply in Pound Sterling many adversely affect external purchasing power for the procurement of foreign inputs of production. foreign exchange supply in US Dollar appears to have favourably significant effect on the output performance of industrial sector (0.3246 and p-value 0.000). Policymakers should address the excesses of foreign currency traders in order to lessen Naira/Dollar exchange rate uncertainty.