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Investment, Pass‐Through, and Exchange Rates: A Cross‐Country Comparison
Author(s) -
Campa José Manuel,
Goldberg Linda S.
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00016
Subject(s) - endogeneity , investment (military) , economics , monetary economics , markup language , exchange rate , production (economics) , international economics , macroeconomics , econometrics , politics , political science , computer science , xml , law , operating system
Using detailed data from the United States, Canada, the United Kingdom, and Japan, we examine the implications of exchange rates for time series of sectoral investment. Both theoretically and empirically, we show that investment responsiveness to exchange rates varies over time, positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production. Important differences exist in investment endogeneity across high‐ and low‐price‐over‐cost markup sectors, with investment in low‐markup sectors often significantly more responsive to exchange rates. Cross‐country differences in investment response are only partially explained by industrial organization arguments.