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Exchange rates, market structure and price-cost margins: evidence from a developing country

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  • Oner Guncavdi
  • Benan Zeki Orbay

Abstract

This paper analyses the sensitivity of firm performance to exchange rate fluctuations. In a two-country world, consisting of a developing domestic country and a developed foreign country, we show that this sensitivity is closely related with market structure and the share of imported inputs in total cost. When the share of imported inputs is low, depreciation leads to an increase in price cost margin. This increase intensifies in more competitive industries. When the imported input share is high, the price cost margin may decrease as a result of depreciation, and this effect becomes pronounced in more competitive industries. The empirical test where we used 3-digit Turkish Manufacturing industry data support most of the findings of our model.

Suggested Citation

  • Oner Guncavdi & Benan Zeki Orbay, 2002. "Exchange rates, market structure and price-cost margins: evidence from a developing country," Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 783-789.
    • Handle: RePEc:taf:applec:v:34:y:2002:i:6:p:783-789
    DOI: 10.1080/00036840110058464
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    Cited by:

    1. Günçavdı, Öner & Suna Kayam, Saime, 2017. "Unravelling the structure of Turkish exports: Impediments and policy," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 307-323.
    2. Fatih Ozatay, 2007. "Public sector price controls and electoral cycles," Applied Economics, Taylor & Francis Journals, vol. 39(4), pages 527-539.
    3. Oner Guncavdi & Benan Zeki Orbay, 2004. "The Effects of Foreign Exchange Rate Movements on Domestic Prices in the Turkish Manufacturing Industry," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 1(1), pages 41-56, Julio-Dic.
    4. Süleyman Hilmi Kal & Muhsin Çiftçi, 2022. "Market structure and exchange rate pass‐through in the Turkish manufacturing industry: Evidence from sectoral data," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 995-1016, October.

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