Transmission of Real Exchange Rate Changes to the Manufacturing Sector Performance

28 Pages Posted: 25 Nov 2013

See all articles by Anubha Dhasmana

Anubha Dhasmana

Indian Institute of Management (IIMB), Bangalore

Date Written: November 25, 2013

Abstract

We explore the impact of Real Exchange Rate changes on the performance of Indian manufacturing firms over the period 2000-2012. Our empirical analysis shows that real exchange rate movements have a significant impact on Indian firms’ performance through the import cost channel but not the export competitiveness channel. The impact depends upon the degree of market power as reflected in the industry specific Herfindahl index. Further, appreciation and depreciation affect firms’ performance differently. Overall, our results point towards the need for an effective reserve management policy to deal with sudden movements in exchange rate in the short run while maintaining a competitive exchange rate in the long run.

Keywords: Real Exchange Rate, Manufacturing Performance, Mark up

Suggested Citation

Dhasmana, Anubha, Transmission of Real Exchange Rate Changes to the Manufacturing Sector Performance (November 25, 2013). IIM Bangalore Research Paper No. 435, Available at SSRN: https://ssrn.com/abstract=2359320 or http://dx.doi.org/10.2139/ssrn.2359320

Anubha Dhasmana (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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