INTEREST RATE DISPARITY AND MANUFACTURING SECTOR PERFORMANCE IN NIGERIA

Abstract

This study examined the impact of interest rate spread on the performance of manufacturing sector in Nigeria spanning from 1990 to 2023.  Interest rate spread lending rate, savings rate and Treasury bill rate were used as surrogate to interest rate disparity while manufacturing value added was used as a proxy for the performance of manufacturing sector. Central Bank of Nigeria(CBN), statistical Bulletin and World Banks World Development Indicator (WDI) 2023 were the major source of data collection. Augmented Dickey Fuller unit root and Auto-regressive Distributive Lag were used to ensure the stationarity status and analyze the variables. The empirical result revealed that interest rate disparity is significantly correlated with manufacturing sector performance according to the bound test. This means that the unit root test exhibited a mixed order of integration {(I(0) and I(1)}. Further findings showed that interest rate spread had a negative relationship with manufacturing value added in the previous and second year period of the short-run while lending rate and treasury bill rate revealed a negative relationship with manufacturing value added the long-run. However, the relationship between savings rate and manufacturing value added reported a positive and significant relationship in the previous year period of the short-run. Hence, it was concluded that rising interest rate disparity is detrimental to manufacturing sector performance in Nigeria. It was recommended amongst others that the Central Bank of Nigeria (CBN) should implement measures to narrow the interest rate spread, such as promoting competition in the banking sector, enhancing monetary policy transmission, and encouraging banks to reduce lending rates while maintaining attractive deposit rates. This would help make credit more affordable and accessible to the manufacturing sector, thereby supporting short-term industrial growth.