It is widely believed that globalization acts as a stabilizer that should dampen exchange rate pass-through because the increased competition faced by businesses will lead them to compress their margins to remain competitive and absorb rising costs. 16 Eventually, however, local prices should adjust to exchange rate movements, if they persist.
We may, in fact, be seeing this effect here in Canada, since some retailers in the automotive and book sectors have recently adjusted prices downwards in the face of greater competitive pressures stemming from the rise of the Canadian dollar. Third, globalization may have a conflicting influence on productivity.