Exchange Rate Volatility and Sectoral Performance in Nigeria: A Comparative Analysis with Implications for Economic Diversification (1981-2024)

The nation’s quest for economic diversification has been repeatedly challenged by persistent exchange rate fluctuations, which distort investment decisions, increase production costs, and undermine sectoral growth. This study therefore, investigated how exchange rate volatility (EXRV) impact sectoral performance in Nigeria with implications for economic diversification using annual data from 1981 to 2024 obtained from the CBN Statistical Bulletin and WDI. The GARCH model and ARDL technique was employed and the findings revealed heterogeneous sectoral responses to EXRV. EXRV exerted a negative but insignificant impact on agricultural sector performance, a negative and significant impact on industrial sector performance, and a positive significant impact on services sector performance in the long run. FDI positively influence the performance of the industrial sector, while inflation and interest rates had mixed effect across the sectors. The comparative analysis revealed that services sector was the least affected by exchange rate fluctuations, the industrial sector is the most vulnerable, with minimum effect on the agriculture sector. From the findings, the study concluded that EXRV plays a significant role in the performance of the economy's sectors and serves as a great parameter for Nigeria's economic diversification agenda. The study highlighted the need for policies that fosters exchange rate stability, improve industrial competitiveness and ensure sustainable growth across productive sectors of the economy.