Effects of interest rates on performance of manufacturing firms in nigeria

The study evaluates the effect of interest rates on the performance of manufacturing firms in Nigeria between 1981 to 2018. Despite all attempts in developing the manufacturing sector it is still not performing or growing as expected. Statistics have shown that the share of manufacturing in the aggregate GDP declined from 5.3% in 1981 to 4.1% in 1993, 3.4% in 2005, and 4.1% in 1993, 3.4% in 2005, and 2.1% in 2016. The objective of the study is to assess the relationship between interest rates and the performance of manufacturing firms in Nigeria for 38 years. Three indicators such as manufacturing sector output, manufacturing capacity utilization, and manufacturing value-added were employed as proxies of manufacturing firm’s performance. The data were analyzed using ordinary least square regression (OLS) on manufacturing output and autoregressive distributed lag (ARDL) on manufacturing capacity utilization and manufacturing value-added. A pre-diagnostic test such as the unit root test and cointegration test was carried out on the variables. The cointegration test showed a relationship between manufacturing sector output and interest rates and no cointegration of interest rates with manufacturing capacity utilization and value-added. The data analyzed indicated interest rates has no effect on manufacturing sector output, result also showed that interest rates have no significant effect on capacity utilization and interest rates have a significant impact on manufacturing value-added in Nigeria. It is recommended that interest rates be benchmarked to single digits by the authority; manufacturing firms should be encouraged to operate on a full capacity scale so as to absorb the high-interest rates. The authority will need to step up the responsibility to ensure funds are made available at lower interest rates to the manufacturing sector.