INTEREST RATES SPREAD AND THE PERFORMANCE OF THE MANUFACTURING SECTOR IN NIGERIA
Beauty Igbinovia, PhD and Fred Osahon Okunmahie, PhD
Volume 4 Issue 2
Abstract
This study examined the impact of interest rate spread on the performance of Nigeria's manufacturing sector from 1985 to 2022. The data for this study came from the World Bank's World Development Indicators (WDI) and the Central Bank of Nigeria's (CBN) Statistical Bulletin 2022. The Augmented Dickey-Fuller (ADF) approach was used to run a unit root test on the created model. The variables were integrated in mixed order I(0) and I (1), according to the results of the Augmented Dickey-Fuller unit root test. To ascertain whether there is a long-term correlation between public investment and real sector growth, the study employed the Auto-regressive Distributive Lag (ARDL) model to perform a bound test. The results of the Auto-regressive Distributive Lag (ARDL) bound test indicate that the performance of the manufacturing sector and interest rate spread are related over the long term, The Auto-regressive Distributive Lag (ARDL) result showed that the manufacturing sector's performance is positively impacted by the exchange rate and inflation rate. However, it was shown that foreign direct investment had a negative but insignificant impact on the manufacturing sector's performance, whereas interest rate spread had a negative but substantial effect. As a result, the study finds that interest spread and the manufacturing sector's performance are strongly correlated. The study therefore recommends that the Monetary Policy Authority (CBN) should, among other things, stop deposit money banks from raising lending rates regularly and instead allow them to offer single- or interest-free loans to the manufacturing sector. Keywords: Foreign Direct Investment, Inflation, Interest Rate Spread, Manufacturing Sector Performance, Rate on Exchange
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