Central Bank of Nigeria working paper finds inflation and currency depreciation drive deindustrialization while rate cuts and FDI support industry

The Central Bank of Nigeria published a working paper assessing the asymmetric macroeconomic drivers of deindustrialization in Nigeria, using a Nonlinear Autoregressive Distributed Lag model alongside least squares regression and other diagnostics. Across 1981 to 2023, the study reports a statistically significant deindustrialization trend and concludes that higher inflation and currency depreciation are associated with weaker industrial performance, while currency strengthening, favourable foreign direct investment shifts, and lower interest rates support industrial activity. Supporting evidence includes a fall in the industry share of gross domestic product from about 10 percent in 1981 to about 3 percent in 2023, with services overtaking industry in 1983 and industry falling below agriculture in 1995. In the reported nonlinear specification, both positive and negative inflation shocks are associated with lower industrial output, with a larger effect from inflation increases, and exchange rate moves consistent with depreciation are linked to weaker outcomes; monetary policy rate cuts are associated with improved industrial performance, and adverse changes in foreign direct investment are associated with weaker output. The paper is published as research in progress and notes that the views expressed are those of the authors rather than the Central Bank of Nigeria.