EXCHANGE-RATE CHANGES AND THE DISTRIBUTION OF INDUSTRY VALUE

This article investigates the simple, widely-held hypothesis that an exogenous real home currency depreciation enhances the competitiveness of home country manufacturers vis a vis foreign rivals. The study associates changes in competitiveness with redistributions of value within an industry. Daily and weekly data on redistributions of value are obtained from world financial markets. The study estimates the relationship between changes in exchange rates and redistributions of value within the world automobile and steel industries during the period 1978-87. The data generally do not support the notion that firms benefit competitively from a depreciation of the home currency. On the contrary, for large fractions of both industries, a depreciation of the home currency is associated with a significant decline in their share of industry value.