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Exchange rate appreciation and export competitiveness. The case of Singapore

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Abstract:

Policy prescriptions have generally assumed that exchange rate depreciation would stimulate exports and curtail imports, while exchange rate appreciation would be detrimental to exports and encourage imports. This prediction has, however, often neglected to consider the existence of the import content of exports, as well as the dynamic effects of productivity improvements. Our paper seeks to show empirically, the significance of these two factors in affecting the competitiveness of Singapore's exports. Specifically, the paper shows that in the presence of high import content, exports are not adversely affected by currency appreciation because the lower import prices due to appreciation reduce the cost of export production. In the case of Singapore, this cushioning effect outweighs that of the effect of productivity gains on export competitiveness. The service exports, however, with a very low import content tend to suffer from currency appreciation.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/000368498326137

Publication date: January 1, 1998

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