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The Economic Consequences of Dollar Appreciation for US Manufacturing Investment: A Time-Series Analysis

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Author Info
ROBERT A. BLECKER () (Department of Economics, American University)

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Abstract

This paper analyzes the effects of the real value of the dollar on investment in US domestic manufacturing using aggregate data for 1973-2004. Econometric estimation shows a negative effect that is much larger than has been found in any previous study. The exchange rate affects investment mainly, although not exclusively, through the channel of financial or liquidity constraints, rather than by affecting the desired stock of capital. Counterfactual simulations show that US manufacturing investment would have been 61% higher and the capital stock would have been 17% higher in 2004 if the dollar had not appreciated after 1995.

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File URL: http://www.american.edu/academic.depts/cas/econ/workingpapers/2006-07.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by American University, Department of Economics in its series Working Papers with number 2006-07.

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Length: 46 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:amu:wpaper:0706

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Web page: http://www.american.edu/cas/economics/

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Related research
Keywords: investment; manufacturing; exchange rate; US dollar; profits; US economy;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
F31 - International Economics - - International Finance - - - Foreign Exchange
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
    Other versions:
  3. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October. [Downloadable!] (restricted)
  4. Jose Campa & Linda S. Goldberg, 1993. "Investment in Manufacturing, Exchange-Rates and External Exposure," NBER Working Papers 4378, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  6. Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-88, November. [Downloadable!] (restricted)
  7. Chirinko, Robert S & Schaller, Huntley, 1995. "Why Does Liquidity Matter in Investment Equations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 527-48, May. [Downloadable!] (restricted)
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  8. Clarida, Richard H, 1997. "The Real Exchange Rate and US Manufacturing Profits: A Theoretical Framework with Some Empirical Support," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(3), pages 177-87, July. [Downloadable!] (restricted)
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    Other versions:
  10. Bhaskar, V. & Glyn, A., 1992. "Investment and Profitability: The Evidence from the Advanced Capitalist Countries," Economics Series Working Papers 99144, University of Oxford, Department of Economics.
  11. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 631-53, October. [Downloadable!] (restricted)
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  12. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November. [Downloadable!] (restricted)
  13. Marc Lavoie & Gabriel Rodríguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor and Francis Journals, vol. 18(2), pages 127-149, April. [Downloadable!] (restricted)
  14. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January. [Downloadable!] (restricted)
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas I. Palley, 2006. "RETHINKING TRADE AND TRADE POLICY: Gomory, Baumol, and Samuelson on Comparative Advantage," Economics Public Policy Brief Archive ppb_86, Levy Economics Institute, The. [Downloadable!]
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