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Unravelling The Nexus between Exchange Rate Undervaluation and Global Value Chain Participation

Author

Listed:
  • Mariz Abdou Kalliny

    (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

  • Ibrahim Elbadawi
  • Patrick Plane

    (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

  • Chahir Zaki

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne)

Abstract

The undervaluation of the real exchange rate (RER) can influence the performance of national exports and affect a country's participation in global value chains (GVCs). Thus, using the Eora dataset for 143 countries over the period 1995-2018, we assess the impact of this policy on a country's foreign value added (FVA) in exports which represents the value added in exports whose outputs are produced by foreign industries (backward participation) and the domestic value added (DVX) in exports, that refers to the value added that is embodied in the exports of other countries (forward linkages). Currency undervaluation displays a positive impact on these two ways of participating in GVCs. Consistent with what has been noted in a recent strand of literature, undervaluation acts as a compensatory factor for countries with weak institutions, and the impact of this undervaluation becomes more pronounced as the level of digitization in the economy increases. Our econometric results remain robust to a battery of sensitivity analysis tests.

Suggested Citation

  • Mariz Abdou Kalliny & Ibrahim Elbadawi & Patrick Plane & Chahir Zaki, 2024. "Unravelling The Nexus between Exchange Rate Undervaluation and Global Value Chain Participation," Working Papers hal-04688048, HAL.
    • Handle: RePEc:hal:wpaper:hal-04688048
    Note: View the original document on HAL open archive server: https://uca.hal.science/hal-04688048
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