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Exchange Rate Transmission into Industry-Level Export Prices: A Tale of Two Policy Regimes in India


  • Sushanta Mallick
  • Helena Marques


In the 1990s, India initiated extensive policy reforms that included the adoption of a flexible exchange rate regime and an acceleration of trade liberalization. This paper analyzes the impact of the policy reforms on exchange rate pass-through into export prices using sectoral panel data (at the two-digit Standard International Trade Classification level) for the pre-reform (1980–90) and post-reform (1991–2001) periods. Several econometric tests revealed the existence of a structural break in pass-through into export prices around 1991. The panel results suggest that the number of industries exhibiting incomplete pass-through increased in the 1990s relative to the 1980s, reflecting a higher degree of pricing power by these firms as export prices react to exchange rate changes in more sectors, after having controlled for the effect of product shares, marginal cost variations, and a macroeconomic policy index. These changes in pass-through behavior may be partly attributable to the elimination of currency and trade controls, which increased competition among firms and fostered a concern with market share gains in the 1990s, over an attempt to make profits as a result of depreciation in the 1980s. IMF Staff Papers (2008) 55, 83–108; doi:10.1057/palgrave.imfsp.9450027; published online 15 January 2008

Suggested Citation

  • Sushanta Mallick & Helena Marques, 2008. "Exchange Rate Transmission into Industry-Level Export Prices: A Tale of Two Policy Regimes in India," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 83-108, April.
  • Handle: RePEc:pal:imfstp:v:55:y:2008:i:1:p:83-108

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    References listed on IDEAS

    2. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
    3. Adolfo Barajas & Roberto Steiner, 2002. "Why Don't They Lend? Credit Stagnation in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 156-184.
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    Cited by:

    1. Yanamandra, Venkataramana, 2015. "Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 57-68.
    2. Mallick, Sushanta K. & Sousa, Ricardo M., 2013. "The real effects of financial stress in the Eurozone," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 1-17.
    3. Mallick, Sushanta & Marques, Helena, 2012. "Pricing to market with trade liberalization: The role of market heterogeneity and product differentiation in India’s exports," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 310-336.
    4. repec:eee:iburev:v:26:y:2017:i:6:p:1034-1050 is not listed on IDEAS
    5. Yushi Yoshida, 2009. "Market Share and Exchange Rate Pass-through:Competition among Exporters of the Same Nationality," Discussion Papers 37, Kyushu Sangyo University, Faculty of Economics.
    6. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
    7. Erol, Isil & Unal, Umut, 2015. "Role of Construction Sector in Economic Growth: New Evidence from Turkey," MPRA Paper 68263, University Library of Munich, Germany.
    8. Yoshida, Yushi, 2010. "New evidence for exchange rate pass-through: Disaggregated trade data from local ports," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 3-12, January.
    9. Mallick, Sushanta & Marques, Helena, 2016. "Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 68-81.
    10. Mallick, Sushanta & Marques, Helena, 2010. "Data frequency and exchange rate pass-through: Evidence from India's exports," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 13-22, January.

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