Depreciations Without Exports? Global Value Chains and the Exchange Rate Elasticity of Exports

28 Pages Posted: 20 Apr 2016

See all articles by Swarnali Ahmed

Swarnali Ahmed

International Monetary Fund (IMF)

Maximiliano Appendino

International Monetary Fund (IMF)

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

Date Written: August 11, 2015

Abstract

This paper analyzes how the exchange rate elasticity of exports has changed over time and across countries and sectors, and how the formation of global value chains has affected this relationship. The analysis uses a panel framework covering 46 countries over the period 1996-2012, and first finds evidence that the elasticity of manufacturing export volumes to the real effective exchange rate has decreased over time. The paper then examines whether the formation of supply chains has affected this elasticity using different measures of global value chain integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves the competitiveness of a fraction of the value of final goods exports. In line with this intuition, the analysis finds evidence that the rise of participation in global value chains explains on average 40 percent of the fall in the elasticity, and that corrections of the real effective exchange rate for participation in global value chains do not present the same decreasing pattern in elasticity.

Keywords: International Trade and Trade Rules

Suggested Citation

Ahmed, Swarnali and Appendino, Maximiliano and Ruta, Michele, Depreciations Without Exports? Global Value Chains and the Exchange Rate Elasticity of Exports (August 11, 2015). World Bank Policy Research Working Paper No. 7390. Available at SSRN: https://ssrn.com/abstract=2642592

Swarnali Ahmed (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Maximiliano Appendino

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Michele Ruta

Economic Research Division, WTO ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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