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Exchange Rate Pass-through and Industry Characteristics: The Case of Taiwan's Exports of Midstream Petrochemical Products

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  • Kuo-Liang Wang
  • Chung-Shu Wu
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    Abstract

    Based on 1986-1992 survey data of 22 midstream petrochemical industries in Taiwan, the empirical results of the export price, the markup ratio and the price-cost margin equations in this study show that Taiwan's petrochemical firms absorb only a small portion of a given weighted exchange rate change in their export prices, markup ratios and price-cost margins. It implies that Taiwan's petrochemical firms have a weak pricing-to-market pattern. The empirical results may be explained by the volatility of profitability, high market concentration and small export/domestic production share. However, the impacts of the exchange rate change on the export price, markup ratio and price-cost margin have a tendency to increase during the period of 1987" to 1992. The tendency might be attributed to increasing competition of the petrochemical markets in the world, or Taiwanese firms' gradual realization of the importance of holding their world market shares in response to the exchange rate change.

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    File URL: http://www.nber.org/papers/w5749.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5749.

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    Date of creation: Sep 1996
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    Publication status: published as Kuo-Liang Wang, Chung-Shu Wu. "Exchange Rate Pass-through and Industry Characteristics: The Case of Taiwan's Exports of Midstream Petrochemical Products," in Takatoshi Ito and Anne O. Krueger, editors, "Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7)" University of Chicago Press (1999)
    Handle: RePEc:nbr:nberwo:5749

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    1. Prema-chandra Athukorala, 1990. "Exchange Rate Pass Through: The Case of Korean Exports of Manufacturers," Working Papers 1990.08 EDIRC Provider-In, School of Economics, La Trobe University.
    2. Clarke, Roger & Davies, Stephen W, 1982. "Market Structure and Price-Cost Margins," Economica, London School of Economics and Political Science, vol. 49(195), pages 277-87, August.
    3. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers 1992.32, School of Economics, La Trobe University.
    4. Kim, Yoonbai, 1990. "Exchange Rates and Import Prices in the United States: A Varying-Parameter Estimation of Exchange-Rate Pass-Through," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 305-15, July.
    5. Klein, Michael W., 1990. "Macroeconomic aspects of exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 376-387, December.
    6. Feinberg, Robert M, 1986. "The Interaction of Foreign Exchange and Market Power Effects on German Domestic Prices," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 61-70, September.
    7. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
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    9. Dei, Fumio, 1990. "A note on multinational corporations in a model of reciprocal dumping," Journal of International Economics, Elsevier, vol. 29(1-2), pages 161-171, August.
    10. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    11. Shinjo Koji, 1993. "Exchange Rate Changes and Pricing Behavior of Japanese Firms: A Cross-Section Analysis," Journal of the Japanese and International Economies, Elsevier, vol. 7(2), pages 157-174, June.
    12. Bih Jane Liu, 1994. "Cost Externality and Exchange Rate Pass-Through: Some Evidence from Taiwan," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 247-272 National Bureau of Economic Research, Inc.
    13. Fisher, Eric, 1989. "Exchange rate pass-through and the relative concentration of German and Japanese manufacturing industries," Economics Letters, Elsevier, vol. 31(1), pages 81-85.
    14. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
    15. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
    16. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
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