The Impact of Foreign Currency Reserve& Exchange Rate on Manufacturing Sector Performance in Ethiopia
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Date
2020-12
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A.A.U
Abstract
This study analyzed the impact of foreign currency reserve & exchange rate on manufacturing sector performance using 40 years of data from 1980-2019. The study followed a quantitative approach, explanatory design, and employed secondary time series data. The data was extracted from the annual publications of the National Bank of Ethiopia (NBE), the world development indicator (WDI), and the ministry of industry Ethiopia. The data were tested for stationarity using Phillips–Perron test that makes a non-parametric correction to the t-test statistic test. The data was thereafter analyzed using the autoregressive distributed lag model (ARDL). The ARDL result indicated that foreign currency reserve has a positive and significant effect on manufacturing sector performance in the long run. The 1st lag of foreign currency reserve has also a positive and significant effect on manufacturing sector performance in the short run. Exchange rate maintained a negative and insignificant effect in the long run and no effect at all on manufacturing sector performance in the short run. The research concludes manipulating foreign currency reserve is more effective than manipulating foreign exchange rate to enhance manufacturing sector performance in Ethiopia.
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Keywords
Manufacturing sector performance, Foreign currency reserve