Devaluation and Competitiveness: Evidence from the Tea and Cotton Textiles Industries
This paper measures the effect of currency rate changes on the competitive - ness of India’s main export industries, Tea and Cotton Textiles. In contrast to the conventional approach that uses data from commodity markets, the present study is based on data from stock markets. The analysis is done in two parts. The first part reports estimates of somewhat significant currency rate exposure of the major Tea and Cotton Textiles exporting firms in India and other coun - tries. The second part reports the movements of the average excess returns of the exposed Indian firms, based on an event-study of the devaluation of the Rupee in 1991. The theory behind the econometric models invokes only the effi - ciency property of financial markets and seems less controversial than its coun - terpart in the conventional approach.
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