The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry

Abstract

This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate behaviour on fixed capital investment in Mexican manufacturing sector over 1994-2002. We find that i) currency depreciation has a positive (negative) effect on fixed investment through the export (import) channel; ii) exchange rate volatility impacts mostly export oriented sectors ; iii) the sensitivity of investment to exchange rate movements is stronger in non-durable goods sectors and industries with low mark-up ratios.Exchange rate volatility ; investment ; external exposure ; market structure