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The impact of exchange rate volatility on plant-level investment: Evidence from Colombia

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  • Kandilov, Ivan T.
  • Leblebicioglu, AslI

Abstract

We estimate the impact of exchange rate volatility on firms' investment decisions in a developing country setting. Employing plant-level panel data from the Colombian Manufacturing Census, we estimate a dynamic investment equation using the system-GMM estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998). We find a robust negative impact of exchange rate volatility, constructed either using a GARCH model or a simple standard deviation measure, on plant investment. Consistent with theory, we also document that the negative effect is mitigated for establishments with higher mark-up or exports, and exacerbated for lower mark-up plants with larger volume of imported intermediates.

Suggested Citation

  • Kandilov, Ivan T. & Leblebicioglu, AslI, 2011. "The impact of exchange rate volatility on plant-level investment: Evidence from Colombia," Journal of Development Economics, Elsevier, vol. 94(2), pages 220-230, March.
  • Handle: RePEc:eee:deveco:v:94:y:2011:i:2:p:220-230
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    Cited by:

    1. Endrész, Marianna & Harasztosi, Péter, 2014. "Corporate foreign currency borrowing and investment: The case of Hungary," Emerging Markets Review, Elsevier, pages 265-287.
    2. Roberto Alvarez & Ricardo A. López, 2015. "Foreign Technology Acquisition and Changes in the Real Exchange Rate," The World Economy, Wiley Blackwell, vol. 38(4), pages 613-628, April.
    3. 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.
    4. repec:cii:cepiei:2015-q1-141-8 is not listed on IDEAS
    5. Mourad Zmami & Ousama Ben-Salha, 2015. "The adjustment of plant-level investment to exchange rate fluctuations in Tunisia: do the size and the ownership structure matter?," Economics Bulletin, AccessEcon, vol. 35(4), pages 2487-2505.
    6. Caglayan, Mustafa & Demir, Firat, 2014. "Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation," World Development, Elsevier, vol. 54(C), pages 204-219.
    7. Nguyen, Ha Trong & Duncan, Alan S, 2017. "Exchange rate fluctuations and immigrants' labour market outcomes: New evidence from Australian household panel data," Journal of International Economics, Elsevier, pages 174-186.
    8. Ricardo Lopez, 2015. "Long Real Exchange Rate Volatility and Imports of Intermediate Inputs: A Microeconometric Analysis of Manufacturing Plants," Working Papers 86, Brandeis University, Department of Economics and International Businesss School.
    9. repec:eee:iburev:v:26:y:2017:i:3:p:476-490 is not listed on IDEAS
    10. 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.
    11. repec:tou:journl:v:45:y:2017:p:79-97 is not listed on IDEAS
    12. Nguyen, Ha Trong & Duncan, Alan S, 2017. "Exchange rate fluctuations and immigrants' labour market outcomes: New evidence from Australian household panel data," Journal of International Economics, Elsevier, pages 174-186.
    13. Slimani, Slah & Ben allem, Khaoula, 2017. "Les déterminants du misalignement du taux de change réel : Analyse empirique pour le cas de la région MENA
      [Determinants of misalignment of the real exchange rate: An empirical analysis for the MEN
      ," MPRA Paper 81247, University Library of Munich, Germany.
    14. 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.

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