Bought, Sold, and Bought Again : The Impact of Complex Value Chains on Export Elasticities
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 g...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/816441531511812643/Bought-sold-and-bought-again-the-impact-of-complex-value-chains-on-export-elasticities http://hdl.handle.net/10986/30070 |
| Summary: | 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. |
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