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Backward participation in global value chains and exchange rate driven adjustments of Swiss exports

Dario Fauceglia (), Andrea Lassmann, Anirudh Shingal () and Martin Wermelinger ()
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Anirudh Shingal: European University Institute
Martin Wermelinger: University of St. Gallen

Review of World Economics (Weltwirtschaftliches Archiv), 2018, vol. 154, issue 3, 537-584

Abstract: Abstract This paper examines the effect of exchange rate movements on export volume, export revenues and propensity to export taking into account the extent of foreign value added content of exports (“backward integration”) in global value chains (GVCs). Using both product-level and firm-level panel data, our results suggest that Swiss exports (intensive margin) and the export probability (extensive margin) are negatively affected by a currency appreciation. However, this adverse effect is mitigated in sectors and firms that are more integrated in GVCs, which could be explained by the “natural hedging” of exchange rate movements. Our findings are robust to the use of different measures of natural hedging and GVC integration and also hold across various specifications and estimation methods that control for sample selection, firm heterogeneity, heteroskedastic errors and persistence in export behavior. The dynamic specifications also reveal that export hysteresis driven by a currency appreciation is a concern particularly for firms that are not established in export markets.

Keywords: International trade; Exchange rates; Global value chains; Gravity equation; Exchange rate pass-through (search for similar items in EconPapers)
JEL-codes: F10 F14 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:weltar:v:154:y:2018:i:3:d:10.1007_s10290-018-0310-z