Exchange rates and investment: comparing the effects of export intensity and import competition

Salimeh Abedini Birang (), Rebecca Neumann and Saleh S. Tabrizy ()
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Salimeh Abedini Birang: The University of Oklahoma, Dodge Family College of Arts and Sciences, Department of Economics
Saleh S. Tabrizy: The University of Oklahoma, Michael F. Price College of Business, Tom Love Division of Entrepreneurship and Economic Development

International Economics and Economic Policy, 2025, vol. 22, issue 2, No 10, 30 pages

Abstract: Abstract This study examines the impact of changes in industry-specific effective real exchange rates (IERER) on industry-level investment. We explore how variations in export intensity and import competition affect the long-run relationship between exchange rates and investment by employing sample information from 12 manufacturing industries across five European countries from 2001 to 2019. Our findings reveal significant impacts from export intensity: In industries with low export-to-output ratios, an IERER depreciation is associated with a decline in investment. Among export intensive industries, however, we find no significant effect from IERER depreciation, indicating that industries that are heavily engaged in exporting activities do not reduce their investment when they gain greater price competitiveness. We further find that variations in import competition do not significantly alter the influence of exchange rate fluctuations on investment decisions.

Keywords: Effective real exchange rate; Investment; Exports; Imports (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10368-025-00662-y

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