DID THE STRONG DOLLAR INCREASE COMPETITION IN UNITED-STATES PRODUCT MARKETS

Sunk cost models of new trade theory have demonstrated that large, una nticipated swings in currency values can have permanent effects on tra de flows by altering market structure in imperfectly competitive marke ts. I test an implication of these models using panel data on export u nit values from Germany and Japan to a number of foreign markets, incl uding the United States. I find weak evidence in support of the thesis that U.S. product markets became more competitive as a result of the large dollar appreciation of the 1980s, although the results vary by i ndustry and comparison country.