Threshold of currency devaluation and oil price movements that stimulates industrial production

Abstract

Even though oil prices are not subject to manipulations by individual countries, instability in the same generates shocks that other variables respond to, yet amid these shocks, more units of local currencies in developing countries are needed to acquire foreign inputs for production. Fluctuating oil prices consequently imply that high prices would increase the cost of production and ultimately reduce the purchasing power of industries. This study ascertains threshold effects of exchange rate devaluation and changes in oil prices on the industrial output of thirty developing countries using threshold and nonlinear autoregressive distributed lag (NARDL) regressions. Results revealed percentage rise above the devaluation threshold caused a fall in production by 4.36 percent. Oil prices within this devaluation region negatively affected output. Below and within the devaluation threshold of 0.692, the relationship patterns switch with oil price variability attracting positive and significant effects, while devaluation impacted industrial output positively with a substantial magnitude of 0.334. A higher devaluation was met with lower output in the industrial sector. In this higher region, increased oil prices weaken devaluation effects by 91.882. When a currency falls more than it is obtainable in the threshold (6.9 percent), oil prices cut output by a larger magnitude than it stimulated positively when the devaluation rate did not surpass the threshold value.

Effect of Crude Oil Prices and Production on the Performance of Nigerian Gross Domestic Product: A Conceptual Framework

“…Apart from unrest and insecurity issues the oil price glut globally has become one of the biggest challenges deterring the Nigerian economy (Akinlo, 2012;Udoh & Umoh, 2014;Adugbo, 2016). Umoru et al (2023) proofed in their study that crude oil price volatility has a significant negative impact on the Nigerian economy using Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model. In the same vein (Obi & Nwezeaku, 2021) affirmed that the relationship between crude oil production and the Nigerian GDP is positively significant using Johansen cointegration test and error correction model.…”

Factor Input Prices and Unemployment in Uganda

“…nation's export and import competitiveness, which in turn affects employment levels in export-oriented industries (Umoru et al, 2023). Additionally, growth in gross domestic product (GDP) is a good indicator of the state of the economy and is strongly related to employment patterns (Feng, Lagakos, & Rauch, 2024).…”

“…Lending interest rates averaged 15.7% in 2021, increasing to 16.5% in 2023, affecting borrowing costs for businesses and individuals (Adeosun et al, 2023). The dynamics of employment have also been impacted by fluctuations in the real effective exchange rate, with the Ugandan Shilling falling from 3,700 UGX per US dollar in 2020 to 3,850 UGX per US dollar in 2022 (Umoru et al, 2023). Additionally, GDP growth in Uganda, which stood at $114 billion in 2023, has been characterized by fluctuations, highlighting the intricate relationship between economic growth and unemployment (James, Eria, & Ibrahim, 2023).…”