Publication: Bought, Sold, and Bought Again: The Impact of Complex Value Chains on Export Elasticities
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2018-07
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Date
2018-07-30
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Abstract
Global value chain participation affects the exchange rate pass-through to export prices and export volumes. The paper develops a partial equilibrium model of international trade with cross-border production and shows that higher participation in global value chains reduces the elasticities. Specifically, a higher share of foreign value added in exports reduces the exchange rate pass-through to export prices and export volumes. A greater share of exports that return as imports also reduces the responsiveness of export volumes to changes in bilateral exchange rates. Finally, exports of inputs that are further re-exported increase the responsiveness to the trading partner's effective exchange rate. Using a novel sector-level panel dataset with 40 countries, the analysis tests and finds strong empirical support for the theoretical predictions. The paper further shows that some sectors in some countries can even experience a decline in gross exports when their currency depreciates.
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“de Soyres, Francois; Frohm, Erik; Gunnella, Vanessa; Pavlova, Elena. 2018. Bought, Sold, and Bought Again: The Impact of Complex Value Chains on Export Elasticities. Policy Research Working Paper;No. 8535. © World Bank. http://hdl.handle.net/10986/30070 License: CC BY 3.0 IGO.”
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