Exchange Rate Implications for Australian Manufacturing Investment and Exports*

This paper uses time series data on individual industries to examine the relationship between exchange rates and investment for Australian manufacturing. The results show that the investment response to exchange rate changes for the total manufacturing sector varies positively with the export share of sales and negatively with the imported input use, but most individual industries do not show similar effects. The level of import competition is not a significant influence for either the total manufacturing sector or for individual industries. Exchange rate effects are limited to investment in equipment plant and machinery, with little impact on investment in buildings and structures.