THE IMPACT OF INFLATION ON THE MANUFACTURING SECTOR OF THE NIGERIAN ECONOMY (1981- 2011)

ABSTRACT

This study analyses the linkage between inflation rate and manufacturing sector of the Nigerian economy over the period of 19812011. The study used data sourced from the Central Bank of Nigeria CBN. The ordinary least square technique OLS was used to specify and examine the relationship between the variables Government expenditure, inflation rate and money supply which are the independent variables and the manufacturing index which is the dependent variable for the first model. The independent variables for the second model are consumer price index, Nominal interest rate and exchange rate while the dependent variable is the manufacturing index. The explanatory power of the models was given by the R2 of 11.799 for the first model and 62.85 for the second model and was subjected to the ttest and ftest to test the significance of the independent variables. The second model based on the result, we found out that it was more significant than the first model. The research revealed that inflation has a positive effect on the manufacturing sector in Nigeria. This goes a long way to say that increase in inflation leads to increase in the manufacturing output and that manufacturers should not to be discouraged by the increase in inflation rate, and depreciating value of Naira.