Global Value Chains and the Exchange Rate Elasticity of Exports

29 Pages Posted: 3 Feb 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: November 2015

Abstract

This paper analyzes how the formation of Global Value Chains (GVCs) has affected the exchange rate elasticity of exports. Using a panel framework covering 46 countries over the period 1996-2012, we first find some suggestive evidence that the elasticity of real manufacturing exports to the Real Effective Exchange Rate (REER) has decreased over time. We then examine whether the formation of supply chains has affected this elasticity using different measures of GVC integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves competitiveness of a fraction of the value of final good exports. In line with this intuition, we find evidence that GVC participation reduces the REER elasticity of manufacturing exports by 22 percent, on average.

Keywords: Real Exchange Rate, Global Value Chains, exports, exchange, value, elasticity, trade, Country and Industry Studies of Trade, All Countries,

JEL Classification: F31, F14, F15

Suggested Citation

Ahmed, Swarnali and Appendino, Maximiliano and Ruta, Michele, Global Value Chains and the Exchange Rate Elasticity of Exports (November 2015). IMF Working Paper No. 15/252. Available at SSRN: https://ssrn.com/abstract=2727217

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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