Selected Macroeconomic Variables and Capacity Utilization in Nigeria
Abstract
Capacity utilization is the extent to which an enterprise or a nation uses its installed productive capacity. It is the relationship between output that is produced with the installed equipment, and the potential output which could be produced with it, if capacity was fully used. The study examined selected macroeconomic variables and capacity utilization in Nigeria. Specifically, the study examines the effect of monetary policy rate, exchange rate, interest rate, inflation rate and treasury bill rate on capacity utilization in Nigeria. Econometric techniques, including Descriptive Statistics, Augmented Dicker Fuller tests for unit roots, Autoregressive Distributive Lag (ARDL) approach which is capable of handling both stationary at level I(0) and first difference I(1). The study revealed that interest rate, exchange rate, monetary policy rate and treasury bill rate have 71% significant short run policy effect but no significant long run effects on capacity utilization in Nigeria. This suggests that selected macroeconomic variables have not been effective long run policy instruments that can largely influence capacity utilization in Nigeria. The study therefore concludes that selected macroeconomic variables have been effective short run policy instruments that largely influenced capacity utilization in Nigeria. Amongst the recommendations is that Central Bank of Nigeria should employ an expansionary monetary policy that can increase the money supply to the real sectors to boost capacity utilization in Nigeria. That the regulatory authorities in Nigeria should employ different set of measures to safeguard the value of the domestic currency in order to reduce the level of exchange rate fluctuations and improve capacity utilization in Nigeria. The monetary authorities in Nigeria should reduce interest rate to attract low interest rates that can encourage credit and boost productivity across the sectors which will improve capacity utilization in Nigeria.
