Abstract

Nigerian economy has been described as import dependent and the manufacturing sector has to compete with other sectors for available foreign currency. As the paper investigated the effect of real exchange rate on manufacturing sector in Nigeria from 1999 to 2021. Time series data drawn from Central Bank of Nigeria Statistical Bulletins and publications of National Bureau of Statistics was used in the study while Vector Autoregressive Estimates was used to analyze the effect of the explanatory variables (real exchange rate, foreign direct investment, trade openness and foreign portfolio investment) on the dependent variable (manufacturing sector, proxy by the contribution of manufacturing sector to GDP). The regression result indicated that real exchange rate had negative and no significant effect on manufacturing sector. The study recommends among others that market forces should be allowed to determine nominal exchange rate which will help in modulating real exchange rate; there should be effective implementation of local content policy and provision of incentives to encourage foreign investments. There is need for economic stabilization aimed at reducing cost of doing business. The government is advised to continue to improve the ease of doing business in Nigeria by promoting development of industry layouts, improving power supply and ensuring security of life and properties of the populace.