EFFECT OF EXCHANGE RATE DEVALUATION ON THE MARKET SHARE OF MANUFACTURING SECTOR IN NIGERIA
Keywords:
Exchange rate devaluation, Market share, MANUFACTURING SECTOR, Market Share, Purchasing Power Parity TheoryAbstract
Recently, the Nigerian Naira has been described by investors to be in a state of free fall, falling to almost about 500 Naira per USD$. Foreign exchange devaluation, while having its perks, also brings with it a number of challenges to the host economy, especially if the country lacks the needed mechanism and foreign reserve to enforce its foreign exchange. This is the case of the foreign exchange of Nigeria. The increasing debt and migration in Nigeria has raised the demand for foreign currencies in Nigeria, more than what was anticipated by the Central Bank, leaving the bank incapable of cleaning up the shortfalls. The study was carried out to examine the effect of exchange rate
devaluation on the market share of manufacturing sector in Nigeria. The specific objectives include; to evaluate the effect of exchange rate devaluation on market share of manufacturing sector in Nigeria, determine the existence of a long-run relationship between exchange rate devaluation and manufacturing sector market share in Nigeria and to examine the presence of a causal relationship between exchange rate devaluation and manufacturing sector market share in Nigeria. The standard linear regression model was used in this work to examine the effect of exchange rate devaluation on the market share of manufacturing sector in Nigeria. The classical linear regression model is the best model for the study due to the linear relationship that exists between the variables in the study. The results of the OLS regression analysis show that exchange rate has a positive and considerable impact on manufacturing firm market share in Nigeria, but interest rate has a negative but minimal impact on manufacturing sector market share in Nigeria. In addition, the rate of inflation was found to have a favorable but minor impact on the manufacturing sector's market share in Nigeria. Therefore, the study recommended among others that the government further devalues the foreign exchange of Nigeria, as it has been found to positively and significantly impact on the volume of output of the manufacturing sector. Devaluing the exchange rate means that exports will become cheaper for Nigeria, and hence, manufacturing firms will be able to earn more market share by exporting to other countries of the world