Exchange rates, market structure and price-cost margins: evidence from a developing country


Guncavdi O., Orbay B.

APPLIED ECONOMICS, vol.34, no.6, pp.783-789, 2002 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 34 Issue: 6
  • Publication Date: 2002
  • Doi Number: 10.1080/00036840110058464
  • Title of Journal : APPLIED ECONOMICS
  • Page Numbers: pp.783-789

Abstract

This paper analyses the sensitivity of firm performance to exchange rate fluctuations. In a two-country world, consisting of a developing domestic country and a developed foreign country, we show that this sensitivity is closely related with market structure and the share of imported inputs in total cost. When the share of imported inputs is low, depreciation leads to an increase in price cost margin. This increase intensifies in more competitive industries. When the imported input share is high, the price cost margin may decrease as a result of depreciation, and this effect becomes pronounced in more competitive industries. The empirical test where we used 3-digit Turkish Manufacturing industry data support most of the findings of our model.