Devaluation and Competitiveness: Evidence from the Tea and Cotton Textiles Industries

Guha-Khasnobis, Basudeb

doi:1997.12.1.113

Journal of Economic Integration 1997 March;12(1) :113-130.
DOI: https://doi.org/10.11130/jei.1997.12.1.113

Devaluation and Competitiveness: Evidence from the Tea and Cotton Textiles Industries

Basudeb Guha-Khasnobis

Indira Gandhi Institute of Development Research

ABSTRACT

This paper measures the effect of currency rate changes on the competitiveness of India's main export industries, Tea and Cotton Textiles. In contrast to the conventional approach that uses data from commodity markets, the present study is based on data from stock markets. The analysis is done in two parts. The first part reports estimates of somewhat significant currency rate exposure of the major Tea and Cotton Textiles exporting firms in India and other countries. The second part reports the movements of the average excess returns of the exposed Indian firms, based on an event-study of the devaluation of the Rupee in 1991. The theory behind the econometric models invokes only the efficiency property of financial markets and seems less controversial than its counterpart in the conventional approach. (JEL Classification: F0)