 Global value chains and external adjustment: Do exchange rates still matter?Gustavo Adler, Sergii Meleshchuk and Carolina Osorio Buitron Economic Modelling, 2023, vol. 118, issue C Abstract: The exchange rate has traditionally been regarded as a key mechanism of external adjustment because its movement induces changes in exports and imports by affecting the price of tradable goods relative to domestic goods. However, the relevance of this mechanism has been questioned with the rise of global value chains (GVCs), because exporters increasingly use imported inputs, which implies that exchange rates affect both the price and production costs of exports. This paper studies how a country's trade balance responds to exchange rate changes in the presence of GVCs. It uses bilateral trade data for 37 economies over 2000–14, exploiting information in global input-output tables to measure countries' integration into GVCs. The results indicate that GVC integration dampens the exchange rate elasticity of export and import volumes but also leads to larger trade flows in proportion to output. Overall, the findings suggest that exchange rates remain relevant for external adjustment. Keywords: Global value chains; Exchange rates; Elasticities; External adjustment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:118:y:2023:i:c:s0264999322003108 DOI: 10.1016/j.econmod.2022.106073 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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