Dominant Currency and Value-Added Exports

Abstract

This study investigates the real effects of exchange rate changes on exports with three key features; pricing in a dominant currency like the US dollar, imported intermediary use in production, and exports dependent on major demanded countries. We test the longitudinal effects of exchange rates using a data set of both gross and value-added bilateral exports. The key finding distinguishes the positive panel effect of US dollar depreciation due to the dollar liquidity effect from the negative panel effects of other currencies depreciations due to the intermediary import effect. The two detailed results stand out mostly due to the impacts of intermediate goods imports. First, the panel effect of currency depreciation on value-added exports is smaller than gross exports. Second, the panel effect of depreciation on intermediary goods exports is bigger than final goods exports. Also, the panel effects of income and exports-FDI feedback are significant, enriching for the relationship between trade flows and foreign investment.

Received: 29 April 2022 / Accepted: 9 August 2022 / Published: 2 September 2022