Moderating Effect of Local Raw Materials on Relationship Between Inflation and Manufacturing Output in Nigeria

Persistent macroeconomic instability and structural supply-side weaknesses continue to constrain Nigeria’s manufacturing sector, raising concerns about how inflation interacts with domestic production dynamics. This study examined the relationship between inflation and manufacturing output in Nigeria, as well as the moderating influence of local raw material utilization on this relationship. A quantitative ex-post facto design was adopted, relying on secondary macroeconomic time-series data spanning 1981 to 2023. Data were sourced from the Central Bank of Nigeria, National Bureau of Statistics, and the Manufacturers Association of Nigeria. Analysis was performed in EViews 12 using descriptive statistics, the Augmented Dickey-Fuller stationarity test, and Ordinary Least Squares (OLS) regression. White-Hinkley (HC1) heteroskedasticity-consistent standard errors were applied to ensure the reliability of coefficient estimates. The findings revealed that inflation has a statistically significant positive effect on manufacturing output, indicating that moderate increases in inflation initially stimulate production. Local raw material utilization exhibited a positive but statistically insignificant direct effect. However, the interaction term between inflation and local raw materials was negative and significant, demonstrating that higher reliance on domestic inputs weakens inflation’s positive impact on manufacturing output due to structural inefficiencies in local supply chains. Based on these findings, the study recommends strengthening domestic raw material markets through improved quality standards, supply consistency, and competitive pricing mechanisms. It further recommends enhancing industrial policies that support resilient local value chains to ensure that domestic sourcing contributes effectively to sustainable manufacturing performance in Nigeria.