Reforms, Exchange Rate Pass-Through and India’s Export Prices



Using a Demand–Supply model of export determination along the lines of an imperfect substitutes model, exchange rate pass-through is estimated in this study. This is done using a time comparable panel dataset and the panel data econometric technique. The results show incomplete and low exchange rate pass-through to India’s aggregate export prices. However, the extent of exchange rate pass-through varies across product groups. The findings on exchange rate pass-through have implications for exchange rate being used as a policy instrument for export promotion and growth during reforms on the one hand, and in narrowing the current account deficit, on the other hand.


Exchange Rate Real Exchange Rate Exchange Rate Regime Foreign Exchange Market Export Price 


  1. Acharyya, R. (2012). India’s trade and exchange rate policies: Understanding the BOP crises and the reforms thereafter. In C. Ghate (Ed.), Oxford Handbook on Indian Economy. UK/USA: Oxford University Press.Google Scholar
  2. Athukorala, P. (1991). Exchange rate pass-through: The case of Korean exports of manufactures. Economics Letters, 35(1), 79–84.CrossRefGoogle Scholar
  3. Athukorala, P., & Menon, J. (1994). Pricing-to-market behavior and exchange rate pass-through in Japanese exports. Economic Journal, 104(423), 271–281.CrossRefGoogle Scholar
  4. Athukorala, P., & Menon, J. (1995). Exchange rates and strategic pricing in Swedish machinery exports. Oxford Bulletin of Economics and Statistics, 57(4), 529–542.CrossRefGoogle Scholar
  5. Banik, N., & Biswas, B. (2007). Exchange rate pass-through in the US automobile market: A cointegration approach. International Review of Economics and Finance, 16(2), 223–236.CrossRefGoogle Scholar
  6. Brahmbhatt, M., Srinavasan, T. G., and Murrell, K. (1996). India in the Global Economy. Policy Research Working Paper no. 1681, Washington, DC: World Bank.Google Scholar
  7. Calvo, G. A., & Reinhart C. M. (2000). Fear of Floating. NBER Working Paper No. 7993, Cambridge, MA: National Bureau of Economic Research. (
  8. Dholakia, R. H., & Saradhi, V. R. (2000). Exchange rate pass-through and volatility: Impact on Indian trade. Economic and Political Weekly, 35(43–53), 4109–4116.Google Scholar
  9. Dornbusch, R. (1987). Exchange rates and prices. American Economic Review, 77(1), 93–106.Google Scholar
  10. Engel, C. (2002). The Responsiveness of Consumer Prices to Exchange Rates and the Implications for Exchange-Rate Policy: A Survey of a Few Recent New Open-Economy Macro Models. NBER Working Paper No. 8725. Cambridge, MA: National Bureau of Economic Research. (
  11. Feenstra, R. C. (1989). Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test. Journal of International Economics, 27(1–2), 25–45.CrossRefGoogle Scholar
  12. Feenstra, R., Gagnon, J., & Knetter, M. (1996). Market share and exchange rate pass-through in world automobile trade. Journal of International Economics, 40(21), 187–207.CrossRefGoogle Scholar
  13. Froot, K., & Klemperer, P. (1989). Exchange rate pass-through when market share matters. American Economic Review, 79(4), 637–654.Google Scholar
  14. Gagnon, J., & Knetter, M. M. (1995). Markup adjustment and exchange rate fluctuations: Evidence from panel data on automobile exports. Journal of International Money and Finance, 14(2), 289–310.CrossRefGoogle Scholar
  15. Gil-Pareja, S. (2000). Exchange rates and European countries’ export prices: An empirical test for asymmetries in pricing to market behaviour. Review of World Economics (Weltwirtschaftliches Archiv), 136(1), 1–23.CrossRefGoogle Scholar
  16. Gil-Pareja, S. (2001). Pricing to market in European automobile exports to OECD countries: A panel data approach. Applied Economics, 33(14), 1845–1856.CrossRefGoogle Scholar
  17. Giovannini, A. (1988). Exchange rates and traded goods prices. Journal of International Economics, 24(1–2), 45–68.CrossRefGoogle Scholar
  18. Goldberg, P. K. (1995). Product differentiation and oligopoly in international markets: The case of the US automobile industry. Econometrica, 63(4), 891–951.CrossRefGoogle Scholar
  19. Goldberg, P. K., & Knetter, M. M. (1997). Goods prices and exchange rates: What have we learned? Journal of Economic Literature, 35(3), 1243–1272.Google Scholar
  20. Goldberg, P. K., & Knetter, M. M. (1999). Measuring the intensity of competition in export markets. Journal of International Economics, 47(1), 27–60.CrossRefGoogle Scholar
  21. Goldstein, M., & Khan, M. (1985). Income and price effects in foreign trade. In R. W. Jones & P. B. Kenen (Eds.), Handbook of International Economics (Vol. 2, pp. 1041–1105). Amsterdam: North Holland.Google Scholar
  22. Government of India.(1976). Economic Survey. New Delhi: Department of Economic Affairs, Ministry of Finance. (various years)Google Scholar
  23. Gross, D. M., & Schmitt, N. (1996). Exchange rate pass-through and rivalry in the Swiss automobile market. Weltwirtschaftliches Archiv, 123(2), 278–303.CrossRefGoogle Scholar
  24. Gross, D. M., & Schmitt, N. (2000). Exchange rate pass-through and dynamic oligopoly: An empirical investigation. Journal of International Economics, 52(1), 89–112.CrossRefGoogle Scholar
  25. Helleiner, G. K. (1994). Introduction. In G. K. Helleiner (Ed.), Trade Policy and Industrialisation in Turbulent Times. London: Routledge.CrossRefGoogle Scholar
  26. Hooper, P., & Mann, C. L. (1989). Exchange rate pass-through in the 1980s: The case of US imports of manufactures. Brookings Papers on Economic Activity, 20(1), 297–337.CrossRefGoogle Scholar
  27. Joshi, V., & Little, I. M. D. (1994). India: Macroeconomics and Political Economy, 1964–1991. Delhi: Oxford University Press.Google Scholar
  28. Knetter, M. (1989). Price discrimination by US and German exporters. American Economic Review, 79(1), 198–210.Google Scholar
  29. Knetter, M. (1993). International comparisons of pricing-to-market behaviour. American Economic Review, 83(3), 473–486.Google Scholar
  30. Knetter, M. (1994). Is export price adjustment asymmetric?: Evaluating the market share and marketing bottlenecks hypotheses. Journal of International Money and Finance, 13(1), 55–70.CrossRefGoogle Scholar
  31. Knetter, M. (1995). Pricing to market in response to unobservable and observable shocks. International Economic Journal, 9(2), 1–25.Google Scholar
  32. Krishnamurthy, K., & Pandit, V. (1995). India’s Trade Flows: Alternative Policy Scenarios: 1995–2000. Working Paper No. 32, Delhi: Centre for Development Economics, Delhi School of Economics.Google Scholar
  33. Krugman, P. (1987). Pricing to market when the exchange rate changes. In S. W. Arndt & D. Richardson (Eds.), Real-Financial Linkages among Open Economies (pp. 49–70). Cambridge, MA: MIT Press.Google Scholar
  34. Madsen, J. (1998). Errors-in-variables, supply side effects, and price elasticities in foreign trade. Weltwirtschaftliches Archiv, 134(4), 612–637.CrossRefGoogle Scholar
  35. Mallick, S., & Marques, H. (2008). Exchange rate transmission to industry-level export prices: A tale of two policy regimes in India. IMF Staff Papers, 55(1), 83–108.CrossRefGoogle Scholar
  36. Mallick, S., & Marques, H. (2010). Data frequency and exchange rate pass-through: Evidence from India's exports. International Review of Economics and Finance, 19(1), 13–22.Google Scholar
  37. Mallick, S., & Marques, H. (2012). Pricing to Market with trade liberalization: The role of market heterogeneity and product differentiation in India's exports. Journal of International Money and Finance, 31(2), 310–336.Google Scholar
  38. Mann, C. (1986). Prices, profit margins, and exchange rates. Federal Reserve Bulletin. June, 366–379.Google Scholar
  39. Marston, R. (1990). Pricing to market in Japanese manufacturing. Journal of International Economics, 29(3–4), 217–236.CrossRefGoogle Scholar
  40. Menon, J. (1992). Exchange rate and prices of Australian manufactured exports. Weltwirtschaftliches Archiv, 128(4), 695–710.CrossRefGoogle Scholar
  41. Menon, J. (1995). Exchange rate pass-through. Journal of Economic Surveys, 9(2), 197–231.CrossRefGoogle Scholar
  42. Panagariya, A. (2005). India's Trade Reform. The Policy Reform Forum 2004. 1. Brookings and NCAER, India.Google Scholar
  43. Patnaik, I. (2003). India’s Policy Stance on Reserves and the Currency. ICRIER Working Paper No 108, New Delhi: Indian Council for Research on International Economic Research.Google Scholar
  44. Pollard, P. S., & Coughlin, C. (2004). Size Matters: Asymmetric Exchange Rate Pass-through at the Industry Level. University of Nottingham Research Paper 2004-13 and Federal Reserve Bank of St. Louis Working Paper 2003-029C. Google Scholar
  45. Pradhan, H. K. (1993). Exchange Rate Policy of India: 1970–92. EXIM-Bank Occasional Paper, No 22, May. Mumbai: EXIM Bank of India.Google Scholar
  46. Rajaraman, I. (1991). Impact of Real Exchange Rate Movements on Selected Indian Industrial Exports. Economic and Political Weekly, 26(11/12), 669–678.Google Scholar
  47. Ranjan, R. (1995). Competitiveness of India’s exports: Some Aspects. Reserve Bank of India Occasional Papers, 16(4), 257–300.Google Scholar
  48. Reinhart, C. M., & Rogoff, K. S. (2002). The Modern History of Exchange Rate Arrangements: A Reinterpretation. NBER Working Paper No. 8963. Cambridgre, MA: National Bureau of Economic Research.Google Scholar
  49. Sen, P. (2003). Exchange rate policy in India. In R. Jha (Ed.), Indian Economic Reforms. Hampshire, U.K: Palgrave Macmillan.Google Scholar
  50. Sinha Roy, S. (2001). India’s trade database: Contours, inconsistencies, and ways ahead. Economic and Political Weekly, 36(1), 51–58.Google Scholar
  51. Sinha Roy, S. (2005). Post-reforms Export Growth in India: An Explanatory Analysis. In N. Banerjee & S Marjit (Eds.), Development, Displacement and Disparity: India in the Last Quarter of the Twentieth Century. Hyderabad: Orient Longman Limited.Google Scholar
  52. Sinha Roy, S. (2009). The Determinants of India’s Exports. Working Paper no. 03-09, International Trade Research Series, Department of Economics, Jadavpur University, Kolkata.Google Scholar
  53. Sinha Roy, S., & Pyne, P. K. (2011). Exchange rate pass-through and India’s export prices. Trade and Development Review, 4(1), 41–63.Google Scholar
  54. Srinivasan, T. N. (1998). India’s Export Performance: A Comparative Analysis. In I. J. Ahluwalia & I. M. D. Little (Eds.), India’s Economic Reforms and Development: Essays for Manmohan Singh, Delhi: Oxford University Press.Google Scholar
  55. Srinivasan, T. N., & Wallack, J. S. (2004). Export Performance and Real Effective Exchange Rate. In A. O. Krueger & S. Z. Chinoy (Eds.), Reforming India’s External, Financial and Fiscal Policies, New Delhi: Oxford University Press.Google Scholar
  56. Virmani, A. (1991). Demand and supply factors in India’s trade. Economic and Political Weekly, 26(6), 309–314.Google Scholar
  57. Wang, K. L., & Wu, C. S. (1999). Exchange rate pass-through and industry characteristics: The case of Taiwan’s exports of midstream petrochemical products. In T. Ito & A. O. Krueger (Eds.), Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (pp. 211–230). Chicago: The University of Chicago Press.Google Scholar
  58. Yang, J. (1995). Exchange rate pass-through in the U.S. market: A cross-country and cross-product investigation. International Review of Economics & Finance, 4(4), 353–371.CrossRefGoogle Scholar
  59. Yang, J. (1997). Exchange rate pass-through in US manufacturing industries. Review of Economics and Statistics, 79(1), 95–104.CrossRefGoogle Scholar
  60. Yang, J. (1998). Pricing-to-market in US imports and exports: A time series and cross-sectional study. Quarterly Review of Economics and Finance, 38(4), 843–861.CrossRefGoogle Scholar

Copyright information

© Springer India 2014

Authors and Affiliations

  1. 1.Department of EconomicsJadavpur UniversityKolkataIndia

Personalised recommendations