Global value chains and exchange rate pass-through—The role of non-linearities

Jan Hagemejer, Aleksandra Hałka and Jacek Kotłowski

International Review of Economics & Finance, 2022, vol. 82, issue C, 461-478

Abstract: This paper examines the role of global value chains development in reducing the exchange rate pass-through (ERPT) to import and producer prices. In contrast to the existing research, we assume that the decline in ERPT resulting from the enhanced participation in GVC may be non-linear with respect to country’s position in the global value chain due to different firms’ market power at various stages of vertical specialization. We investigate a panel of 43 advanced and emerging market economies using a panel smooth transition regression model and WIOD data. We find that growing backward GVC participation of the suppliers of imported intermediate input results in a reduction of the ERPT to producer prices in the importing country. Moreover this effect is non-linear. The ERPT for countries whose suppliers are strongly involved in the production along the global value chains is significantly (four times) smaller than for economies with suppliers not participating in GVC. We also document that the decline in aggregate ERPT in recent years resulted mainly from changes occurring in ERPT for the EU member states due to increased backward GVC participation of their major trading partners, while the ERPT for other countries has in fact remained roughly unchanged throughout the analyzed period.

Keywords: Global value chains; Exchange rate pass-through; Inflation; PSTR model (search for similar items in EconPapers)
JEL-codes: C23 E31 F14 F62 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056022001502
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Global value chains and exchange rate pass-through: the role of non-linearities (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:82:y:2022:i:c:p:461-478

DOI: 10.1016/j.iref.2022.05.009

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().