FOREIGN EXCHANGE, INTERMEDIATE INPUTS IMPORT AND INDUSTRIALIATION NEXUS IN NIGERIA

Author: Solomon Abayomi Olakoo and Olawale E. Ogunkola
Volume: 60 Issue No:3 Year:2018

Abstract: This study investigates the link among exchange rate, importation of key intermediate inputs and industrialization in Nigeria using data covering 19812016. It utilizes structural vector autoregressive (SVAR) model based on contractionary devaluation hypothesis. Decomposing the variance of industrialization (measured by share of manufacturing sector in GDP), the results show that oil prices, external reserves and exchange rates are important factors. The impulse of industrialization shows that positive shocks to industrialization come directly from shocks to importation of chemical products, as well as machinery and transport equipment, while shocks to these imported inputs come from shocks to foreign exchange. The study thus recommends the need for foreign exchange easing by providing special exchange rate windows for the importation of chemical and machinery and transport equipment. This will go a long way to enhance the much desired industrialization in Nigeria.

JEL Codes: F31, O14, O24

2018-03-03
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