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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. Yushi Yoshida, 2009. "Market Share and Exchange Rate Pass-through:Competition among Exporters of the Same Nationality," Discussion Papers, Kyushu Sangyo University, Faculty of Economics 37, Kyushu Sangyo University, Faculty of Economics.
  2. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers, School of Economics, La Trobe University 1992.32, School of Economics, La Trobe University.
  3. Prema-chandra Athukorala, 1990. "Exchange Rate Pass Through: The Case of Korean Exports of Manufacturers," Working Papers, School of Economics, La Trobe University 1990.08, School of Economics, La Trobe University.
  4. Robert A. Blecker, 2012. "Stolper–Samuelson Revisited: Trade And Distribution With Oligopolistic Profits," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 569-598, 07.
  5. 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, Elsevier, vol. 31(2), pages 310-336.
  6. 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, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 97-109, December.

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