Global value chains and the missing link between exchange rates and export diversification

Thi Anh-Dao Tran, Minh Hong Phi and Long Thai

International Economics, 2020, vol. 164, issue C, 194-205

Abstract: Conceptually, the present paper links export diversification and the real exchange rate (RER) by investigating the direction of causation. On one hand, a stable and competitive exchange rate is a key instrument in promoting export diversification through the tradable sectors’ profitability. But on the other hand, export diversification can help to reduce macroeconomic volatility, which in turn helps to consolidate a stable and competitive exchange rate. We propose a Granger causality test using panel data of the relationship in the middle-income countries of Asia and Latin America over the period from 1995 to 2015. We augment our baseline specification by examining how FDI (a key vehicle of GVC participation) and financial crises (which expose GVCs to disruptions) affect the causal relationship. Intuitively, the benefits of participation in GVCs may differ across countries, depending on external factors that might influence economic outcomes.

Keywords: Global value chains; Export diversification; Real exchange rate; Emerging Asia and Latin America; Financial crises (search for similar items in EconPapers)
JEL-codes: F14 F41 O24 O53 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:164:y:2020:i:c:p:194-205

DOI: 10.1016/j.inteco.2020.10.001

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