IMF research summaries on (1) oil market developments and the global economy (by Selim Elekdag), and (2) credit booms (by Marco Terrones); country study on India (by Helene Poirson); call for papers for November 2007 Jacques Polak Eighth Annual Research Conference; listing of contents of Vol. 54, Issue No. 2 of IMF Staff Papers; listing of recent IMF Working Papers; and listing of visiting scholars at the IMF during April-June 2007
Mrs. Swarnali A Hannan, Maximiliano Appendino, and Michele Ruta
This paper analyzes how the formation of Global Value Chains (GVCs) has affected the exchange rate elasticity of exports. Using a panel framework covering 46 countries over the period 1996-2012, we first find some suggestive evidence that the elasticity of real manufacturing exports to the Real Effective Exchange Rate (REER) has decreased over time. We then examine whether the formation of supply chains has affected this elasticity using different measures of GVC integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves competitiveness of a fraction of the value of final good exports. In line with this intuition, we find evidence that GVC participation reduces the REER elasticity of manufacturing exports by 22 percent, on average.