Bought, Sold and Bought Again: The Impact of Complex Value Chains on Export Elasticities

46 Pages Posted: 23 Apr 2021

See all articles by Francois de Soyres

Francois de Soyres

Board of Governors of the Federal Reserve System

Erik Frohm

OECD; Sveriges Riksbank

Vanessa Gunnella

European Central Bank (ECB)

Elena Pavlova

European Union - European Commission

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2021

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 reexported 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. We further show that some sectors in some countries can experience a decline in gross exports when their currency depreciates.

JEL Classification: F14, F40

Suggested Citation

de Soyres, Francois and Frohm, Erik and Gunnella, Vanessa and Pavlova, Elena, Bought, Sold and Bought Again: The Impact of Complex Value Chains on Export Elasticities (February 1, 2021). International Finance Discussion Paper No. 1309, Available at SSRN: https://ssrn.com/abstract=3881548 or http://dx.doi.org/10.17016/IFDP.2021.1309

Francois De Soyres (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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HOME PAGE: http://https://sites.google.com/site/francoisdesoyres/home

Erik Frohm

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

HOME PAGE: http://https://sites.google.com/view/erikfrohm/home

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/erikfrohm/

Vanessa Gunnella

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elena Pavlova

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

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