Seminar

Global Value Chains and Export Elasticities

François de Soyres (The World Bank)

December 19, 2017, 17:00–18:30

Room MS001

Macroeconomics Seminar

Abstract

Participation in global value chains affects the exchange rate pass-through to export prices and the responsiveness of export volumes to changes in exchange rates, when countries with different currencies are interlinked. In this paper, we develop a partial equilibrium model of international trade with cross-border production and derive quantitative predictions for the role of precisely defined indices of global value chain participation for the export elasticities. Higher import content of exports from a country with a different currency, as well as a greater share of exports that return as imports reduce the responsiveness of exports to changes in the exchange rate. Exports of inputs used by other countries to produce exports increase the responsiveness to the trading partner’s effective exchange rate. The exchange rate pass-through to export prices is only affected by the import content of exports originated in the destination country. Using sectoral data, we validate our theoretical results and show that global value chain participation affects the export elasticities, when production linkages involve countries with different currencies. (joint with Erik Frohm (ECB), Vanessa Gunnella (ECB) and Elena Pavlova (ECB)).