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Real Effective Exchange Rate and Manufacturing Sector Performance: Evidence from Indian firms

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  • Dhasmana, Anubha

Abstract

We explore the impact of Real Exchange Rate changes on the performance of Indian manufacturing firms over the period 2000-2012. Our empirical analysis shows that real exchange rate movements have a significant impact on Indian firms’ performance through the cost as well as the revenue channel. The impact depends upon the share of imports & exports along with the degree of market power as reflected in the time varying firm level mark up. However, presence of overvaluation negates the beneficial effects of exchange rate appreciation operating through the lower input cost channel. The same cannot be said about the ‘price competitiveness’ effect working through the export channel.

Suggested Citation

  • Dhasmana, Anubha, 2013. "Real Effective Exchange Rate and Manufacturing Sector Performance: Evidence from Indian firms," MPRA Paper 47479, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:47479
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    File URL: https://mpra.ub.uni-muenchen.de/47479/1/MPRA_paper_47479.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real Exchange Rate; Manufacturing Performance; Mark up;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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