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The Effects of the Exchange Rate on Value-Added International Trade to Enhance Free Trade Sustainability in GVCs

Author

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  • Myoung Shik Choi

    (Department of Economics, Kyonggi University, 154–42, Gwanggyosan-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do 16227, Korea)

  • Bongsuk Sung

    (Department of International Trade, Kyonggi University, 154–42, Gwanggyosan-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do 16227, Korea)

  • Woo-Yong Song

    (Department of Management and Accounting, Habat National University, 125, Dongseodae-ro, Yuseong-gu, Daejeon 34518, Korea)

Abstract

This study investigates the role of value-added bilateral trade focused on global value chains to achieve sustainable economic development. Our findings address trade policy implications that help to mitigate the global imbalances and exchange rate conflicts. These policies are expected to provide a competitive advantage that can be crucial to the sustainability of free trade. We apply traditional trade models to the value-added framework to examine the effects on value-added trade. Empirically, we investigate the bilateral value-added trade for recent years. Our major findings are that currency devaluation has a positive effect on value-added exports but has a negative effect on gross exports because of the effect on intermediate goods trading dominating the effect on international trade, i.e., the effect on foreign content of intermediate imports dominating the effect on the domestic content of exports. The same effect applies to imports. Also, we confirm that foreign income has a positive effect on exports and value-added exports, and domestic income has a positive effect on imports and value-added imports. However, their effects on trade balance are not consistent. Our major findings imply that the analysis of value-added trade can best contribute to the sustainability of global free trade by considering trade policies as a result of reflecting the easing of the global imbalance and the exchange rate war.

Suggested Citation

  • Myoung Shik Choi & Bongsuk Sung & Woo-Yong Song, 2019. "The Effects of the Exchange Rate on Value-Added International Trade to Enhance Free Trade Sustainability in GVCs," Sustainability, MDPI, vol. 11(10), pages 1-10, May.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:10:p:2740-:d:230891
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    References listed on IDEAS

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    Cited by:

    1. Antonia López-Villavicencio & Valérie Mignon, 2021. "Does backward participation in global value chains affect countries’ current account position?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 65-86, February.
    2. Myoung Shik Choi, 2020. "A Predictive Effect of Exchange Rates on Value-Added Free Trade," Sustainability, MDPI, vol. 12(21), pages 1-10, November.
    3. Myoung Shik Choi, 2021. "Major exchange rates and value-added exports," PSL Quarterly Review, Economia civile, vol. 74(298), pages 179-205.

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