Bought, Sold and Bought Again: The Impact of Complex Value Chains on Export Elasticities

François de Soyres, Erik Frohm, Vanessa Gunnella () and Elena Pavlova

No 1309, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Global value chain (GVC) participation affects the relationship between trade volumes and exchange rate movements. Guided by a simple theory, we show that exports react to the exchange rate between the country producing value added contained in exports and the country of final absorption for this value added. Three predictions follow: (i) a higher share of foreign value added in exports reduce the responsiveness of export volumes to exchange rate changes, (ii) a greater share of exports that returns as imports also reduce the responsiveness of export volumes and (iii) a higher share of inputs that are further reexported increase the responsiveness of exports to the trading partner's nominal effective exchange rate. Using a large origin-sector-destination level panel data set covering the period 1995-2009 and around 85% of world GDP, we find strong empirical support for these predictions. We further show that some sectors in some countries can experience a decline in gross exports when their currency depreciates.

Keywords: Currency unions; Export elasticities; Exchange rate passthrough; Global value chains (search for similar items in EconPapers)
JEL-codes: F14 F40 (search for similar items in EconPapers)
Pages: 46 p.
Date: 2021-02-04
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Bought, sold and bought again: The impact of complex value chains on export elasticities (2021)
Working Paper: Bought, sold, and bought again: the impact of complex value chains on export elasticities (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1309

DOI: 10.17016/IFDP.2021.1309

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