Abstract
The study analyses balance of payments and the manufacturing sector performance in Nigeria
from 1985 to 2022. The study aimed to evaluate the effect of balance of payments proxied by
current count balance, net financial account balance and total reserves on the manufacturing
sector performance measured by manufacturing output. The time series data for the variables
were obtained from the World Development Indicators. The data analysis techniques comprised
of descriptive statistics, unit root test, bounds cointegration, Wald test, and autoregressive
distributed lag (ARDL) estimation method. The result of the ARDL estimation showed that,
growth in manufacturing output was significantly influenced by Nigeria’s current account
balance (CUR) in the short run. In the first lag period of the short run, there was evidence of
significant negative effect of net financial account balance (FIN) on manufacturing output, this
outcome was supported by a probability value of 0.0092, less than 0.05. The study also showed
that, Nigeria’s total reserves (RSV) significantly influenced growth in manufacturing output at
5 percent level in the first lag period. The result of the post estimation analysis via the Breusch
Godfrey serial correlation LM test, heteroskedasticity Test, and Ramsey RESET Test
respectively showed that the model of the study was free from serial correlation,
heteroskedasticity, and misspecification error. Further post estimation test conducted using
CUSUM of Squares disclosed that the model had structural stability. In addition, the result of
the Wald test analysis showed that a significant relationship exists between balance of
payments and manufacturing sector performance in Nigeria on the basis that the F-statistic
value of 0.0011 is less than 5 percent level of significance. Following these empirical
evidences, the study recommended among others that, government should put in place policies
that will enhance increased accumulation of total reserves and prudent management of
Nigeria’s total reserves to ensure more growth in the manufacturing sector.