Open AccessBought, Sold, and Bought Again: The Impact of Complex Value Chains on Export Elasticities
Author(s) -
François de Soyres,
Erik Frohm,
Vanessa Gunnella,
Elena Pavlova
Publication year - 2021
Publication title -
international finance discussion papers
Language(s) - English
Resource type - Journals
eISSN - 2767-4509
pISSN - 1073-2500
DOI - 10.17016/ifdp.2021.1309
Subject(s) - exchange rate , currency , value (mathematics) , economics , monetary economics , international economics , panel data , export performance , international trade , econometrics , machine learning , computer science
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.