Department of Economics
On investment and exchange-rate movements
We investigate the ways in which permanent exchange-rate changes may affect investment by influencing domestic and foreign revenue, the cost of imported variable inputs and the investment price of imported capital goods. We find that the revenue and investment-price channels have a quantitatively greater effect on investment than the cost channel. The negative effect of the revenue channel, which affects the marginal profitability of capital, outweighs the positive effect of the investment-price channel, which affects the marginal cost of capital, implying that exchange-rate appreciation has a net negative influence on investment. The estimation results are robust to different approaches to extracting the permanent components of exchange rates. © 2014 © 2014 Taylor & Francis.
exchange rate, investment, machinery and equipment
Source Publication Title
Taylor & Francis
Link to Publisher's Edition
Ng, Eric C. Y., and Malick Souare. "On investment and exchange-rate movements." Applied Economics 46.19 (2014): 2301-2315.