The Effects of Domestic Currency Depreciation on Import Substitution: New Empirical Evidence from the Ukrainian Pork Industry

Pavlo Martyshev, Sören Prehn, Oleksandr Perekhozhuk and Volodymyr Vakhitov

Eastern European Economics, 2024, vol. 62, issue 1, 89-107

Abstract: Economic theory states that currency devaluation reduces imports. However, tradability of inputs makes the effect ambiguous. This paper aims to test the hypothesis that, when the exchange rate pass-through is higher for input than for output prices in a given sector, the depreciation of the local currency can reduce profitability and output, leading to increased imports. We found partial confirmation of this hypothesis using a structural vector autoregression model for data from the Ukrainian pork sector for 2014 to 2020. Policymakers should consider that pork production is vulnerable to a weakening currency due to high dependence on exportable feed grains.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:mes:eaeuec:v:62:y:2024:i:1:p:89-107

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DOI: 10.1080/00128775.2023.2167721

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