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The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry

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  • Caglayan, Mustafa

    (University of Sheffield)

  • Muñoz Torres, Rebeca I.

    (Department of Economics, University of Warwick)

Abstract

This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate behaviour on fixed capital investment in Mexican manufacturing sector over 1994-2002. We find that i) currency depreciation has a positive (negative) effect on fixed investment through the export (import) channel; ii) exchange rate volatility impacts mostly export oriented sectors ; iii) the sensitivity of investment to exchange rate movements is stronger in non-durable goods sectors and industries with low mark-up ratios.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 846.

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Length: 20 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:846

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Keywords: Exchange rate volatility ; investment ; external exposure ; market structure;

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  1. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
  2. Tarek Harchaoui & Faouzi Tarkhani & Terence Yuen, 2005. "The Effects of the Exchange Rate on Investment: Evidence from Canadian Manufacturing Industries," Working Papers 05-22, Bank of Canada.
  3. Kevin B. Grier & Aaron D. Smallwood, 2007. "Uncertainty and Export Performance: Evidence from 18 Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 965-979, 06.
  4. Nucci, F. & Pozzolo, A.F., 1998. "Investment and the Exchange Rate," Papers 344, Banca Italia - Servizio di Studi.
  5. 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.
  6. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, vol. 38(3-4), pages 297-320, May.
  7. Sangeeta Pratap & Carlos Urrutia, 2004. "Firm Dynamics, Investment, and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994," NBER Working Papers 10523, National Bureau of Economic Research, Inc.
  8. Luis Carranza & Juan M. Cayo & José E. Galdón-Sánchez, 2003. "Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis," Faculty Working Papers 12/03, School of Economics and Business Administration, University of Navarra.
  9. Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
  10. Taylor, Mark P, 1999. "Real Interest Rates and Macroeconomic Activity," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 95-113, Summer.
  11. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "Nonlinear effects of exchange rate volatility on the volume of bilateral exports," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 1-23.
  12. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  13. Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, Department of Economics, University of Kent.
  14. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
  15. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
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Cited by:
  1. Ana María Iregui & Luis Fernando Melo V. & María Teresa Ramírez, 2013. "Efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," Borradores de Economia 801, Banco de la Republica de Colombia.
  2. Ana María Iregui B. & Luis Fernando Melo V. & María Teresa Ramírez G. & Carmen Cecilia Delgado R., 2013. "El efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," BORRADORES DE ECONOMIA 011106, BANCO DE LA REPÚBLICA.
  3. Enzo Cassino & David Oxley, 2013. "How Does the Exchange Rate Affect the Real Economy? A Literature Survey," Treasury Working Paper Series 13/26, New Zealand Treasury.

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