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

45 Pages Posted: 28 Aug 2018

Date Written: July 13, 2018

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.

Keywords: International Trade and Trade Rules, Industrial and Consumer Services and Products, Transport and Trade Logistics, Trade and Services, Macroeconomic Management

Suggested Citation

De Soyres, Francois Michel Marie Raphael and Frohm, Erik and Gunnella, Vanessa and Pavlova, Elena, Bought, Sold, and Bought Again: The Impact of Complex Value Chains on Export Elasticities (July 13, 2018). World Bank Policy Research Working Paper No. 8535. Available at SSRN: https://ssrn.com/abstract=3238378

Francois Michel Marie Raphael De Soyres (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Erik Frohm

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/erikfrohm/

Vanessa Gunnella

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elena Pavlova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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