Rethinking the Exchange Rate Impact on Trade in a World with Global Value Chains

Global value chains (GVCs) are a prominent feature of global production and trading systems. Using the OECD-WTO database on trade in value added, this paper examines the exchange rate elasticities of GVC-related exports and imports and compares them with elasticities for trade in traditonal goods. W...

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Bibliographic Details
Published in:International economic journal 2016, 30(2), , pp.204-216
Main Authors: Cheng, Kevin C., Hong, Gee Hee, Seneviratne, Dulani, van Elkan, Rachel
Format: Article
Language:English
Subjects:
Beggars
Depreciation
Economic models
Elasticity
exchange rate elasticity
Exports
Foreign exchange rates
Global value chains
Imports
International economic organizations
International trade
Production
Supply
Supply chains
trade
Trading
Value added
Value chain
경제학
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Summary:Global value chains (GVCs) are a prominent feature of global production and trading systems. Using the OECD-WTO database on trade in value added, this paper examines the exchange rate elasticities of GVC-related exports and imports and compares them with elasticities for trade in traditonal goods. We find that a real depreciation raises both the foreign and domestic value-added content of GVC-related exports. The size of these elasticities is found to be smaller when the import content of GVC exports is larger. Among the key policy implications of these results is that exchange rate changes by small contributors of value added have little effect on their own production or the production of their supply chain partners. On the other hand, large contributors to the value-added of the final product create spillovers to their smaller supply chain partners, obviating traditional beggar-thy-neighbor concerns.
ISSN:1016-8737
1743-517X
DOI:10.1080/10168737.2016.1148418