Exchange Rate Deregulation and Industrial Performance: An Assessment (1975 – 2006)

Abstract

This paper investigated the impact of exchange rate deregulation on industrial performance in Nigeria. In this study, secondary data over the period 1975 – 2005 was used and the co-integration technique and chow breakpoint test were considered as analytical tools. The study found that a long-run relationship exists between the industrial productivity growth rate, ration of industrial production to gross domestic product, exchange rate, interest rate and terms of trade, and that exchange rate deregulation has significant impact on industrial performance. In order to determine the short term dynamics around the equilibrium relationship, the estimated an error correction model (ECM) and industrial productivity growth rate and contribution of industrial production to GDP lagged by one and two periods, exchange and interest rates emerged as significant determinant of industrial productivity growth rate in Nigeria. The result however suggests the importance, as well as the imperative for Nigeria to embark on
comprehensive exchange rate policy in order to accelerate and sustain industrial growth performance.

Key Words: Exchange Rate, Deregulation, Industrial Performance, Cointegration, Error Correction Mechanism.