Do Exchange Rates Matter in Global Value Chains?

Abstract
We empirically investigate whether global value chains (GVCs) can affect export responsiveness to real exchange rate volatility by constructing two measures of GVC participation at bilateral and sectoral levels from OECD Inter-Country Input-Output (ICIO) Tables. The 2016 edition covers 63 countries and 16 manufacturing sectors between 1995 and 2011. A panel estimation shows that the negative effect of exchange rate volatility on exports is significantly mitigated by GVC participation, which is supported by various robustness checks. Moreover, if regional value chains were better-developed and deepened, exchange rate fluctuations among regional countries would have less negative influence on regional trade.