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Bought, sold and bought again: The impact of complex value chains on export elasticities

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  • de Soyres, François
  • Frohm, Erik
  • Gunnella, Vanessa
  • Pavlova, Elena

Abstract

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 re-exported 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.

Suggested Citation

  • de Soyres, François & Frohm, Erik & Gunnella, Vanessa & Pavlova, Elena, 2021. "Bought, sold and bought again: The impact of complex value chains on export elasticities," European Economic Review, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:eecrev:v:140:y:2021:i:c:s0014292121002099
    DOI: 10.1016/j.euroecorev.2021.103896
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    More about this item

    Keywords

    Export elasticities; Global value chains; Currency unions; Exchange rate pass-through;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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