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

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  • De Soyres,Francois Michel Marie Raphael
  • Frohm,Erik
  • Gunnella,Vanessa
  • Pavlova,Elena

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.

Suggested Citation

  • De Soyres,Francois Michel Marie Raphael & Frohm,Erik & Gunnella,Vanessa & Pavlova,Elena, 2018. "Bought, sold, and bought again : the impact of complex value chains on export elasticities," Policy Research Working Paper Series 8535, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8535
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    More about this item

    Keywords

    International Trade and Trade Rules; Industrial and Consumer Services and Products; Transport and Trade Logistics; Trade and Services; Macroeconomic Management;
    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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