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Exchange Rate Changes and the Distribution of Industry Value

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  • Timothy A Luehrman

    (Harvard Business School)

Abstract

This article investigates the simple, widely-held hypothesis that an exogenous real home currency depreciation enhances the competitiveness of home country manufacturers vis á vis foreign rivals. The study associates changes in competitiveness with redistributions of value within an industry. Daily and weekly data on redistributions of value are obtained from world financial markets. The study estimates the relationship between changes in exchange rates and redistributions of value within the world automobile and steel industries during the period 1978-87. The data generally do not support the notion that firms benefit competitively from a depreciation of the home currency. On the contrary, for large fractions of both industries, a depreciation of the home currency is associated with a significant decline in their share of industry value.© 1991 JIBS. Journal of International Business Studies (1991) 22, 619–649

Suggested Citation

  • Timothy A Luehrman, 1991. "Exchange Rate Changes and the Distribution of Industry Value," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(4), pages 619-649, December.
    • Handle: RePEc:pal:jintbs:v:22:y:1991:i:4:p:619-649
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    Cited by:

    1. Nicas Yabu & Deogratius Kimolo, 2020. "Exchange Rate Volatility and Its Implications on Macroeconomic Variables in East African Countries," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 145-171, May.
    2. Abdul Rashid, 2010. "The Economic Exchange Rate Exposure: Evidence for a Small Open Economy," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 46-58, November.
    3. Tran, Thi Bich Ngoc, 2017. "Speculative bubbles in emerging stock markets and macroeconomic factors: A new empirical evidence for Asia and Latin America," Research in International Business and Finance, Elsevier, vol. 42(C), pages 454-467.
    4. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, vol. 38(3-4), pages 297-320, May.
    5. Haytem Ahmed Troug & Rashid Sbia, 2015. "The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 772-779.
    6. Bahar Erdal, 2001. "Investment Decisions under Real Exchange Rate Uncertainty," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 1(1), pages 25-47.
    7. Bartram, Söhnke M. & Bodnar, Gordon, 2005. "The Exchange Rate Exposure Puzzle," MPRA Paper 6482, University Library of Munich, Germany.
    8. Ahmed A. El-Masry, 2004. "The Exchange Rate Exposure of UK Nonfinancial Companies: Industry-Level Analysis," International Finance 0401001, University Library of Munich, Germany.
    9. Chortareas, Georgios & Cipollini, Andrea & Eissa, Mohamed Abdelaziz, 2012. "Switching to floating exchange rates, devaluations, and stock returns in MENA countries," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 119-127.
    10. Saqib Muneer & Babar Zaheer Butt & Kashif Ur Rehman, 2011. "A Multifactor Model of Banking Industry Stock Returns: An Emerging Market Perspective," Information Management and Business Review, AMH International, vol. 2(6), pages 267-275.
    11. Robert W. Rutledge & Khondkar E. Karim & Chensheng Li, 2014. "A Study of the Relationship between Renminbi Exchange Rates and Chinese Stock Prices," International Economic Journal, Taylor & Francis Journals, vol. 28(3), pages 381-403, September.
    12. Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
    13. Boehe, Dirk Michael, 2014. "Strategic hedging: Evidence from Brazilian exporters," Journal of World Business, Elsevier, vol. 49(3), pages 290-300.
    14. Abdulkadir Abdulrashid Rafindadi & Zarinah Yusof, 2015. "Are Linear and Nonlinear Exchange Rate Exposures Aggravating Agents to Corporate Bankruptcy in Nigeria? New Evidence from the U Test Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 212-229.
    15. Loretta Fung & Jen Baggs & Eugene Beaulieu, 2011. "Plant Scale and Exchange‐Rate‐Induced Productivity Growth," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1197-1230, December.

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