Measuring Competitiveness in a World of Global Value Chains
IMF Working Papers, November 1, 2018
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- Measuring Competitiveness in a World of Global Value Chains
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Bibliographic details
- Authors: Tamim Bayoumi, Maximiliano Appendino, Jelle Barkema
- Published: November 1, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484337134.001
Summary
- All common real effective exchange rate indexes assume trade is only in final goods, despite the growing presence of global supply chains.
- Extending effective exchange rate indexes to include intermediate goods can imply radically different effective exchange rate weights, depending on the relative substitutability of goods in final demand and in production.
- The effect of these shifts in weights are difficult to identify empirically because the two currencies most affected—the dollar and the renminbi—have moved closely together.
- As the renminbi becomes more flexible, it will be important to determine which assumptions (about substitution in final demand versus production) are the most realistic.
Key findings and implications
- Including intermediate goods in real effective exchange rate calculations can produce "radically different" weights compared with indexes that assume only final-goods trade.
- The relative substitutability of goods in final demand versus production is a critical determinant of effective exchange rate weights when global value chains are considered.
- Empirical identification of the impact of these weight shifts is complicated by the historical co-movement of the dollar and the renminbi.
- Increased flexibility in the renminbi exchange rate will raise the importance of empirically distinguishing among competing assumptions about substitution and weighting.
Subjects and keywords (as listed)
- Subjects: Competition, Exchange rates, Exports, Financial markets, Foreign exchange, Global value chains, Globalization, International trade, Real effective exchange rates
- Keywords: Competition, exchange rate, exchange rate weight, Exchange rates, Exports, Global, Global value chains, goods, International competitiveness, Real effective exchange rates, renminbi, renminbi depreciation, trade, Trade openness, trade pattern, value chain, weight calculation, WP
Content in this bundle
- Measuring Competitiveness in a World of Global Value Chains, WP/18/229, November 2018