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Pass-through of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation versus Import Liberalisation

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  • Sushanta Mallick
  • Helena Marques

Abstract

This paper examines the extent of pass-through of exchange rate and tariff changes into import prices using sectoral panel data (at the 2-digit SITC level) for the post-reform period in India (1990-2001). After having controlled for unobserved effects that might have an impact on the import prices by using sector dummies, we find that on average exchange rate pass-through (ERPT) is a dominant effect compared to tariff rate pass-through (TRPT) in explaining changes in India’s import prices. The sectoral panel results suggest that the pass-through of exchange rates and tariff rates varies across products. ERPT into import prices is significant in 12 industries, whereas TRPT is significant only in 6 industries, with full pass-through. However, ERPT is incomplete only in 4 industries, but TRPT is incomplete in 36 industries, which means that firms exporting to India more frequently adopt strategies to maintain their market share against tariffs than against exchange rate changes. The sectoral differences in pass-through seem to be related to the sector’s share in total imports and the sector’s effective protection rate. Hence India’s relatively high levels of protection have an impact on the behaviour of foreign exporters.

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Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 3.

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Date of creation: Sep 2007
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Handle: RePEc:cgs:wpaper:3

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Cited by:
  1. Robert A. Blecker, 2012. "Stolper-Samuelson Revisited: Trade and Distribution with Oligopolistic Profits," Working Papers 2012-06, American University, Department of Economics.
  2. repec:ltr:wpaper:1992.32 is not listed on IDEAS
  3. YOSHIDA Yushi, 2013. "Market Share and Exchange Rate Pass-through: Competition among exporters of the same nationality," Discussion papers 13084, Research Institute of Economy, Trade and Industry (RIETI).
  4. M. Abimbola Oyinlola & M. Adetunji Babatunde, 2009. "A Bound Testing Analysis Of Exchange Rate Pass- Through To Aggregate Import Prices In Nigeria: 1980-2006," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 97-109, December.
  5. repec:ltr:wpaper:1990.08 is not listed on IDEAS
  6. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-81, March.
  7. Athukorala, Premachandra, 1991. "Exchange rate pass-through : The case of Korean exports of manufactures," Economics Letters, Elsevier, vol. 35(1), pages 79-84, January.
  8. Mallick, Sushanta & Marques, Helena, 2012. "Pricing to market with trade liberalization: The role of market heterogeneity and product differentiation in India’s exports," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 310-336.

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