Major exchange rates and value-added exports

Authors

  • Myoung Shik Choi

DOI:

https://doi.org/10.13133/2037-3643/17573

Keywords:

exchange rate, foreign investment, global value chains, value-added exports

Abstract

This study’s primary concern is that exporting or multinational firms tend to be more reliant on intermediate imports with major currencies. We investigate the effects of exchange rates on value-added exports in the linkage with the exports-FDI feedback for sustainable free trade development in OECD countries. Our bilateral findings are that the exchange rate effects are greater for gross than value-added exports except for Germany and greater for intermediate goods than final goods exports except for Italy. But there are no significant differences in the effects of exchange rate changes on exports regardless of US dollar and other currencies. Meanwhile, foreign income has a positive effect on all exports, and the exports-FDI feedback has a weak positive effect on exports to China due to increased FDI into China while the value-added exports-FDI nexus has a weak positive effect on all FDIs.

 

JEL codes: F31, F32, F40

 

 

References

Aizenman J. and Noy I. (2006), “FDI and trade: Twoway linkages?”, The Quarterly Review of Economics and Finance, 46(3), pp. 317-337.

Anderson J. and van Wincoop E. (2004), “Trade Costs”, Journal of Economic Literature, 42(3), pp. 691-751.

Baldwin R. and Taglioni D. (2011), “Gravity Chains: Estimating Bilateral Trade Flows When Parts and Components Trade is Important”, European Central Bank Working Paper Series, n. 1401, Frankfurt am Main: European Central Bank.

Bergstand J. and Egger P. (2007), “A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises”, Journal of International Economics, 73(2) pp. 278-308.

Beugelsdijk S., Pedersen T. and Petersen B. (2009), “Is there a trend towards global value chain specialization? An examination of cross border sales of us foreign affiliates”, Journal of International Management, 15(2), pp. 126–141.

Bruno V. and Shin H.S. (2019), “Dollar exchange rate as a credit supply factor: evidence from firm-level exports,” BIS Working Papers, 819, Basel: Bank for International Settlements.

Buelens C. and Tirpák M. (2017), “Reading the footprints: how foreign investors shape countries’ participation in global value chains”, European Central Bank Working Paper Series, n. 2060, Frankfurt am Main: European Central Bank.

Carril-Caccia F. and Pavlova E. (2018), “Foreign direct investment & trade: A global value chains analysis”, presented at the European Trade Study Group 2018 conference, available at https://www.etsg.org/ETSG2018/papers/276.pdf.

Choi M.S., Sung B. and Song W.-Y. (2019), “The Effects of the Exchange Rate on Value-Added International Trade to Enhance Free Trade Sustainability in GVCs”, Sustainability, 11(10), pp. 1-10.

Corsetti G and Pesenti P. (2005), “International dimensions of optimal monetary policy”, Journal of Monetary Economics, 52, pp. 281-305.

Dickey D.A. and Fuller W.A. (1979), “Distribution of the estimators for autoregressive time series with a unit root”, Journal of American Statistical Association, 74, pp. 427-431.

Engle R.F. and Granger C.W.J. (1987), “Cointegration and error correction: Representation, estimation and testing”, Econometrica, 55(2), pp. 1251-76.

Goldberg L. and Tille C. (2008), “Vehicle currency use in international trade”, Journal of International Economics, 76(2), pp. 177-192.

Gunnella V., Fidora M. and Schmitz M. (2017), “The impact of global value chains on the macroeconomic analysis of the euro area”, European Central Bank Economic Bulletin, n. 8, Frankfurt am Main: European Central Bank.

Harach M. and Rodriguez-Crespo E. (2014), “Foreign direct investment and trade: A bi-directional gravity approach”, Kiel Advanced Studies Working Papers, n. 467, Kiel: Kiel Institute for the World Economy (IfW).

Hummels D., Ishii J. and Kei-Mu Y. (2001), “The nature and growth of vertical specialisation in world trade”, Journal of International Economics, 54(1), pp. 75–96.

Ito T., Koibuchi S., Sato K. and Shimizu J. (2015), “Choice of Invoice Currency in Global Production and Sale Networks: The case of Japanese Overseas Subsidiaries”, RIETI Discussion Paper Series, n. 15-E-080, Tokyo: Research Institute of Economy, Trade and Industry.

Johnson R. and Noguera G. (2012), “Accounting for Intermediates: Production Sharing and Trade in Value Added”, Journal of International Economics, 86(2), pp. 224-236.

Koopman R., Wang Z. and Wei S.-J. (2014), “Tracing Value-Added and Double Counting in Gross Exports”, American Economic Review, 104(2), pp. 459-494.

Krugman P. and Venables A. (1996), “Intergration, specialisation, and adjustment”, European Economic Review, 40, pp. 959-967.

Melvin M. and Sultan J. (1990), “The Choice of an Invoicing Currency in International Trade and the Balance of Trade Impact of Currency Depreciation”, Open Economies Review, 1(3), pp. 251-269.

Tille C. and Goldberg L. (2009), “What drives the invoicing of international trade?”, VoxEU, 2 December, London: Center for Economic Policy Research.

Tsaurai, K. (2013), “A Conceptual Literature Analysis of the Relationship between FDI and Exports”, Corporate Ownership and Control, 2(1), pp. 389-393.

Downloads

Published

2021-10-12

How to Cite

Choi, M. S. (2021). Major exchange rates and value-added exports. PSL Quarterly Review, 74(298). https://doi.org/10.13133/2037-3643/17573

Issue

Section

Articles