Research Purpose: Amid the depreciation and volatility of the Nigerian Naira, this study investigates its impact on the industrial production index of manufacturing firms in Nigeria. Given the reliance on imported inputs and machinery, understanding the extent of the Naira's free fall on manufacturing performance and competitiveness is critical.
Methodology: An ex-post-facto research design was employed, analysing 31 years of data (1990-2021) from the World Bank Database. The study utilised the Ordinary Least Square regression technique to test hypotheses related to exchange rate, purchasing power parity conversion factor, and price level ratio.
Findings: The study revealed that the official exchange rate has a significant negative effect on the industrial production index, while the purchasing power parity conversion factor has a significant positive effect. Additionally, the price level ratio shows a significant negative impact on the industrial production index.
Conclusion: The depreciation of the Naira adversely affects the industrial production index of manufacturing firms. The findings suggest that the Naira's free fall can be a predictor of manufacturing performance in Nigeria.
Recommendations: The government should implement a single exchange rate regime across all foreign exchange markets and local banks to ensure accurate estimation of exchange rate effects. Additionally, the Central Bank of Nigeria should enhance monetary and fiscal policies to increase the Naira's purchasing power and reduce the persistent rise in the price level of goods and services.
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