Statistical Evaluation of Exchange Rate Volatility and Its Effect on Manufacturing Output in Ogun State

Exchange rate volatility directly affects the cost of imported raw materials for manufacturers in Ogun State, South West Nigeria, one of the country's leading industrial hubs, with significant consequences for production volume and capacity utilisation. This study statistically evaluates exchange rate volatility and its effect on manufacturing output in Ogun State from 2015 to 2023. Monthly naira-dollar exchange rate data from the Central Bank of Nigeria and manufacturing output indices from the Manufacturers Association of Nigeria Ogun chapter were used. Exchange rate volatility was measured by the standard deviation of monthly percentage changes and by GARCH(1,1) conditional variance estimates. Granger causality tests assessed directional relationships, and ordinary least squares regression quantified the volatility-output relationship. Exchange rate standard deviation averaged 8.3 percent per month over the study period, with peaks during 2016 and 2023 devaluation episodes. Granger causality tests confirmed that exchange rate volatility significantly Granger-causes manufacturing output (F = 7.42, p = 0.001) but not vice versa. OLS regression showed that a one standard deviation increase in exchange rate volatility was associated with a 4.6 percentage point reduction in manufacturing output growth (p = 0.004). Import-dependent sub-sectors showed larger negative effects. The study recommends that Ogun State government facilitate raw material sourcing diversification and that manufacturers engage CBN hedging instruments to reduce exchange rate exposure. Keywords: exchange rate volatility, manufacturing output, GARCH, Ogun State, Granger causality