Abstract
AbstractThis paper investigates how exchange rate fluctuations affect the investment decisions of firms in India. For this, we have estimated a dynamic model using panel data from an aggregate sample of 863 Indian firms. Overall results are consistent with the findings of existing theoretical and empirical literature showing that rupee depreciation has a positive effect on investment through the export channel and negative effect through import channel. The results also reveal that impact of exchange rate changes on investment depends on the competitive structure of firms as the investment of firms with lower monopoly power is more responsive to the exchange rate fluctuations than the firms with higher monopoly power.KeywordsExchange rateInvestmentExport and import exposureMarket power
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