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<p>This paper draws a causal link between the rise of global value chain participation (GVCP) and the decline of exchange rate pass-through (ERPT) to import prices since the 1990s. We first illustrate in a structural multi-country model how greater GVCP in a country’s trading-partners can reduce its ERPT to import prices, both due to re-imports of domestic value-added and third-country value-added provision. We then estimate instrumental variable regressions using adopted trade agreements as instruments for trading-partner GVCP in a cross-country panel dataset of advanced economies for the time period from 2000 to 2014. Consistent with the mechanism spelled out in the structural model, we find that ERPT to import prices has been lower in economies whose trading-partners exhibit greater GVCP.</p>

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Global Value Chain Participation and Exchange Rate Pass-Through

  • 期刊论文

  • 发表日期：

    2025年6月16日

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  • Georgios Georgiadis,
  • Johannes Gräb,
  • Makram Khalil,
  • Ambre Kutten

摘要

This paper draws a causal link between the rise of global value chain participation (GVCP) and the decline of exchange rate pass-through (ERPT) to import prices since the 1990s. We first illustrate in a structural multi-country model how greater GVCP in a country’s trading-partners can reduce its ERPT to import prices, both due to re-imports of domestic value-added and third-country value-added provision. We then estimate instrumental variable regressions using adopted trade agreements as instruments for trading-partner GVCP in a cross-country panel dataset of advanced economies for the time period from 2000 to 2014. Consistent with the mechanism spelled out in the structural model, we find that ERPT to import prices has been lower in economies whose trading-partners exhibit greater GVCP.