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Investment in Manufacturing, Exchange-Rate and External Exposure

  • Goldberg, L.S.
  • Campa, J.

This paper studies the linkage between exchange rates and investment. emphasizing the role of producer exposure through export sales and through imported inputs into production. For two-digit United States manufacturing sectors we present time series of export shares and imported input shares. On average. manufacturing sectors have evolved from being primarily export exposed in the 1970s to being primarily import exposed by the early 1980s. Due to this pattern in exposure. exchange rate appreciations reduced investment in durable goods sectors in the 1970s and stimulated investment after 1983. By contrast nondurables sectors tended to absorb exchange rate changes in price over cost markups. Exchange rate volatility depressed investment but the effects were quantitatively small.

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File URL: http://econ.as.nyu.edu/docs/IO/9389/RR93-18.pdf
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 93-18.

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Length: 34 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:cvs:starer:93-18
Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Order Information: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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  1. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  2. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc.
  3. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  4. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
  5. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  6. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  7. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  8. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  9. Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility, and the Patterns of Domestic and Foreign Direct Investment," NBER Working Papers 3953, National Bureau of Economic Research, Inc.
  11. Kenneth A. Froot & Jeremy C. Stein, 1992. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
  12. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  13. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  14. Klein, Michael W., 1990. "Sectoral effects of exchange rate volatility on United States exports," Journal of International Money and Finance, Elsevier, vol. 9(3), pages 299-308, September.
  15. Thomas VON UNGERN-STERNBERG & C.C. VON WEIZSAECKER, 1989. "Strategic foreign exchange management," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 8905, Université de Lausanne, Faculté des HEC, DEEP.
  16. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  17. Robert E. Lipsey & Mario Schimberni & Robert V. Lindsay, 1988. "Changing Patterns of International Investment in and by the United States," NBER Chapters, in: The United States in the World Economy, pages 475-558 National Bureau of Economic Research, Inc.
  18. Wolak, Frank A & Kolstad, Charles D, 1991. "A Model of Homogeneous Input Demand under Price Uncertainty," American Economic Review, American Economic Association, vol. 81(3), pages 514-38, June.
  19. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  20. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  21. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
  22. Goldberg, Linda S., 1990. "Measuring External Openness: The Index Of Effective Exposure," Working Papers 90-19, C.V. Starr Center for Applied Economics, New York University.
  23. Timothy A Luehrman, 1991. "Exchange Rate Changes and the Distribution of Industry Value," Journal of International Business Studies, Palgrave Macmillan, vol. 22(4), pages 619-649, December.
  24. de Meza, David & van der Ploeg, Frederick, 1987. "Production Flexibility as a Motive for Multinationality," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 343-51, March.
  25. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March.
  26. Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-88, November.
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