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The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry

  • Caglayan, Mustafa

    (University of Sheffield)

  • Muñoz Torres, Rebeca I.

    (Department of Economics, University of Warwick)

This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate behaviour on fixed capital investment in Mexican manufacturing sector over 1994-2002. We find that i) currency depreciation has a positive (negative) effect on fixed investment through the export (import) channel; ii) exchange rate volatility impacts mostly export oriented sectors ; iii) the sensitivity of investment to exchange rate movements is stronger in non-durable goods sectors and industries with low mark-up ratios.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_846.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 846.

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Length: 20 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:846
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Sangeeta Pratap & Carlos Urrutia, 2004. "Firm Dynamics, Investment, and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994," NBER Working Papers 10523, National Bureau of Economic Research, Inc.
  2. Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, School of Economics, University of Kent.
  3. Kevin B. Grier & Aaron D. Smallwood, 2007. "Uncertainty and Export Performance: Evidence from 18 Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 965-979, 06.
  4. Taylor, Mark P, 1999. "Real Interest Rates and Macroeconomic Activity," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 95-113, Summer.
  5. Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
  6. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2000. "Nonlinear Effects of Exchange Rate Volatility on the Volume of Bilateral Exports," Boston College Working Papers in Economics 488, Boston College Department of Economics, revised 30 Jul 2002.
  7. 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.
  8. Luis Carranza & Juan M. Cayo & José E. Galdón-Sánchez, 2003. "Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis," Faculty Working Papers 12/03, School of Economics and Business Administration, University of Navarra.
  9. Jose Campa & Linda S. Goldberg, 1993. "Investment in Manufacturing, Exchange-Rates and External Exposure," NBER Working Papers 4378, National Bureau of Economic Research, Inc.
  10. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
  11. Tarek Harchaoui & Faouzi Tarkhani & Terence Yuen, 2005. "The Effects of the Exchange Rate on Investment: Evidence from Canadian Manufacturing Industries," Working Papers 05-22, Bank of Canada.
  12. Francesco Nucci & Alberto Pozzolo, 1998. "Investment and the Exchange Rate," Temi di discussione (Economic working papers) 344, Bank of Italy, Economic Research and International Relations Area.
  13. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
  14. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
  15. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  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.
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