An Examination of Manufacturing Sector Responses to Government Monetary and Trade Policies in the Nigerian Economy

Abstract

This study examines the impact of government policies on manufacturing sector with the aim of ascertaining the implication on the overall growth in Nigeria. Vector auto-regression (VAR) is employed to capture the contemporaneous responses of manufacturing value added to government such as monetary and trade policies. It is found that government policy on manufacturing is not significant in the long run. In the forecast error decomposition of manufacturing valued added (MVAD) relative to monetary policy, own shocks are major causes of fluctuation. Response of MVAD to policy is negative in the short-run but tends towards neutral in the long run. In other words, monetary and trade policies are ineffective to address manufacturing sector performance in Nigeria. Non-monetary policy factor such as stabilization of economic environment where manufacturing sector operates is suggested. In addition, supply side policies like subsidy and infrastructure may provide a more relevant answer.