Interest Rate Volatility and Manufacturing Sector Growth in Nigeria

This study examines the relationship between interest rate volatility and manufacturing sector growth in Nigeria using annual secondary time-series data for 1981–2023. Manufacturing sector output-to-GDP (MQ/GDP) is used as the principal measure of manufacturing sector growth, while lending rate (LR), inflation rate (INFR), manufacturing sector capacity utilization (MANCU), and an economic-reform dummy (D01) are included in the empirical framework. The study adopts an ex-post facto research design and combines descriptive statistics, correlation analysis, augmented Dickey–Fuller unit-root testing, the ARDL bounds approach to cointegration, Granger causality, and post-estimation diagnostics. The results indicate that interest-rate dynamics are statistically important for manufacturing performance. The long-run ARDL coefficient of lending rate is positive but statistically insignificant (0.0304; p=0.8449). The ARDL bounds test produces an F-statistic of 4.0388, exceeding the 5% upper bound of 4.01, confirming a long-run relationship among the model variables. The error-correction coefficient is negative (−0.3120), indicating adjustment toward long-run equilibrium. Granger-causality results show one-way causality from MQ/GDP to inflation and from MQ/GDP to manufacturing capacity utilization, while the direct lending-rate/MQ/GDP pair is not statistically causal at the selected lag length. Diagnostic tests indicate no serious autocorrelation or heteroskedasticity and support the stability of the estimated model. The study concludes that predictable and investment-supportive interest-rate conditions are important for sustained manufacturing development in Nigeria.

interest rate volatility; manufacturing sector; lending rate; capacity utilization; inflation; ARDL; Nigeria.

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