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Exchange rates and investment: comparing the effects of export intensity and import competition

Author

Listed:
  • Salimeh Abedini Birang

    (The University of Oklahoma, Dodge Family College of Arts and Sciences, Department of Economics)

  • Rebecca Neumann

    (University of Wisconsin-Milwaukee, College of Letters & Sciences, Department of Economics)

  • Saleh S. Tabrizy

    (The University of Oklahoma, Michael F. Price College of Business, Tom Love Division of Entrepreneurship and Economic Development)

Abstract

This study examines the impact of changes in industry-specific effective real exchange rates (IERER) on industry-level investment. We explore how variations in export intensity and import competition affect the long-run relationship between exchange rates and investment by employing sample information from 12 manufacturing industries across five European countries from 2001 to 2019. Our findings reveal significant impacts from export intensity: In industries with low export-to-output ratios, an IERER depreciation is associated with a decline in investment. Among export intensive industries, however, we find no significant effect from IERER depreciation, indicating that industries that are heavily engaged in exporting activities do not reduce their investment when they gain greater price competitiveness. We further find that variations in import competition do not significantly alter the influence of exchange rate fluctuations on investment decisions.

Suggested Citation

  • Salimeh Abedini Birang & Rebecca Neumann & Saleh S. Tabrizy, 2025. "Exchange rates and investment: comparing the effects of export intensity and import competition," International Economics and Economic Policy, Springer, vol. 22(2), pages 1-30, May.
    • Handle: RePEc:kap:iecepo:v:22:y:2025:i:2:d:10.1007_s10368-025-00662-y
    DOI: 10.1007/s10368-025-00662-y
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    More about this item

    Keywords

    Effective real exchange rate; Investment; Exports; Imports;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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