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Exchange Rate Changes and the Distribution of Industry Value

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  • Timothy A Luehrman

    (Harvard Business School)

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    Abstract

    This article investigates the simple, widely-held hypothesis that an exogenous real home currency depreciation enhances the competitiveness of home country manufacturers vis á vis foreign rivals. The study associates changes in competitiveness with redistributions of value within an industry. Daily and weekly data on redistributions of value are obtained from world financial markets. The study estimates the relationship between changes in exchange rates and redistributions of value within the world automobile and steel industries during the period 1978-87. The data generally do not support the notion that firms benefit competitively from a depreciation of the home currency. On the contrary, for large fractions of both industries, a depreciation of the home currency is associated with a significant decline in their share of industry value.© 1991 JIBS. Journal of International Business Studies (1991) 22, 619–649

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 22 (1991)
    Issue (Month): 4 (December)
    Pages: 619-649

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    Handle: RePEc:pal:jintbs:v:22:y:1991:i:4:p:619-649

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    Web page: http://www.palgrave-journals.com/

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    Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
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    Cited by:
    1. Ahmed A. El-Masry, 2004. "The Exchange Rate Exposure of UK Nonfinancial Companies: Industry-Level Analysis," International Finance, EconWPA 0401001, EconWPA.
    2. Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 16(4), pages 385-410, October.
    3. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, Elsevier, vol. 38(3-4), pages 297-320, May.
    4. Bartram, Söhnke M. & Bodnar, Gordon, 2005. "The Exchange Rate Exposure Puzzle," MPRA Paper 6482, University Library of Munich, Germany.
    5. Chortareas, Georgios & Cipollini, Andrea & Eissa, Mohamed Abdelaziz, 2012. "Switching to floating exchange rates, devaluations, and stock returns in MENA countries," International Review of Financial Analysis, Elsevier, Elsevier, vol. 21(C), pages 119-127.
    6. Rashid, Abdul, 2009. "The Economic Exchange Rate Exposure: Evidence for a Small Open Economy," MPRA Paper 21500, University Library of Munich, Germany.
    7. Bahar Erdal, 2001. "Investment Decisions under Real Exchange Rate Uncertainty," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 1(1), pages 25-47.

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