NIGERIA’S DEPENDENCE ON OIL REVENUES AND EXCHANGE RATE INSTABILITY

Abstract

This study examined the effects of exchange rate volatility on industrial growth in Nigeria within the framework of oil dependence and macroeconomic instability. The aim is to investigate the effects of exchange rate volatility on industrial output across sectors. Utilizing annual time-series data spanning 1986–2022, the research employs the Autoregressive Distributed Lag (ARDL) approach to cointegration and the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to measure volatility dynamics. Findings reveal that exchange rate fluctuations exert significant negative effects on industrial output in both the short and long run, while inflation and high interest rates compound adverse effects. Conversely, gross fixed capital formation and trade openness contribute positively to industrial growth. Policy recommendations emphasize exchange rate stabilization, macroeconomic coordination, investment promotion, and export diversification.