Measuring the Effects of Exchange Rate Changes on Investment in Australian Manufacturing Industry

View/ Open
Author(s)
Swift, Robyn
Griffith University Author(s)
Year published
2006
Metadata
Show full item recordAbstract
This paper uses an empirical framework derived from an optimising adjustment-cost model of investment to examine the relationship between exchange rates and investment in Australian manufacturing industry between 1988 and 2001. The results show that the response of investment to exchange rate changes varies with the external exposure of industry, positively with export share of sales and negatively with the share of imported inputs into production. Industry competitive structure, represented by markup of price over cost, interacts with external exposure so that lower levels of markup increase the responsiveness of investment ...
View more >This paper uses an empirical framework derived from an optimising adjustment-cost model of investment to examine the relationship between exchange rates and investment in Australian manufacturing industry between 1988 and 2001. The results show that the response of investment to exchange rate changes varies with the external exposure of industry, positively with export share of sales and negatively with the share of imported inputs into production. Industry competitive structure, represented by markup of price over cost, interacts with external exposure so that lower levels of markup increase the responsiveness of investment to exchange rate changes. For Australian manufacturing industry, a 10% real appreciation of the Australian dollar (AUD) leads to an average 8.0% decrease in total investment through the export share channel over the period, and an average 3.8% increase in total investment through the imported input share channel, with most of the response occurring through investment in Equipment, Plant and Machinery.
View less >
View more >This paper uses an empirical framework derived from an optimising adjustment-cost model of investment to examine the relationship between exchange rates and investment in Australian manufacturing industry between 1988 and 2001. The results show that the response of investment to exchange rate changes varies with the external exposure of industry, positively with export share of sales and negatively with the share of imported inputs into production. Industry competitive structure, represented by markup of price over cost, interacts with external exposure so that lower levels of markup increase the responsiveness of investment to exchange rate changes. For Australian manufacturing industry, a 10% real appreciation of the Australian dollar (AUD) leads to an average 8.0% decrease in total investment through the export share channel over the period, and an average 3.8% increase in total investment through the imported input share channel, with most of the response occurring through investment in Equipment, Plant and Machinery.
View less >
Journal Title
The Economic Record
Volume
82
Issue
S1
Publisher URI
Copyright Statement
© 2006 Blackwell Publishing. This is the author-manuscript version of the paper. Reproduced in accordance with the copyright policy of the publisher. The definitive version is available at www.blackwell-synergy.com
Subject
Economics
Commerce, Management, Tourism and Services