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Transmission of real exchange rate changes to the manufacturing sector: The role of financial access

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  • Anubha Dhasmana

Abstract

We explore the impact of real exchange rate changes on the performance of Indian manufacturing firms over the period 2000–2012. Our empirical analysis shows that real exchange rate movements have a significant impact on Indian firms’ performance but the impact varies across different firm and industry characteristics. In particular, the impact depends upon the degree of market power, trade orientation, foreign ownership, access to domestic finance and industry concentration. Furthermore, appreciation and depreciation affect firms’ performance differently. Results from Panel-VAR confirm these findings. Overall, our results point toward the need for taking into account firm and industry level heterogeneity in designing policies aimed at managing exchange rate shocks and also the role of greater financial development in currency risk management.

Suggested Citation

  • Anubha Dhasmana, 2015. "Transmission of real exchange rate changes to the manufacturing sector: The role of financial access," International Economics, CEPII research center, issue 143, pages 48-69.
  • Handle: RePEc:cii:cepiie:2015-q3-143-4
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    Cited by:

    1. BAHMANI-OSKOOEE, Mohsen & HALICIOGLU, Ferda & Neumann, Rebecca, 2016. "Domestic Investment Responses to Changes in the Real Exchange Rate: Asymmetries of Appreciation versus Depreciation," MPRA Paper 82941, University Library of Munich, Germany, revised 10 Apr 2016.

    More about this item

    Keywords

    Real exchange rate; Manufacturing performance; Financial access;

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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