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<p>Undervaluation of the real exchange rate (RER) can influence exports performance, but also country’s participation in global value chains (GVCs). Yet, in GVCs, where products become multi-country products as intermediate inputs are imported, transformed, and then re-exported, GVC-related trade is expected to respond differently to exchange rate undervaluation compared to traditional trade in single-country goods. Thus, using the EORA dataset for 143 countries over the period 1995–2018, we assess the impact of this policy on a country’s backward and forward participation in value chains, with a special focus on two moderating factors, namely the quality of institutions and digitalization. Our results show that currency undervaluation displays a positive impact on these two ways of participating in GVCs. Consistent with what has been noted in a recent strand of literature, undervaluation acts as a compensatory factor for countries with weak institutions, and the impact of this undervaluation becomes more pronounced as the level of digitalization in the economy increases. These results remain robust to a battery of robustness checks.</p>

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Unravelling the nexus between exchange rate undervaluation and global value chains participation

  • 期刊论文

  • 发表日期：

    2025年12月24日

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  • Mariz Abdou,
  • Ibrahim Elbadawi,
  • Patrick Plane,
  • Chahir Zaki

摘要

Undervaluation of the real exchange rate (RER) can influence exports performance, but also country’s participation in global value chains (GVCs). Yet, in GVCs, where products become multi-country products as intermediate inputs are imported, transformed, and then re-exported, GVC-related trade is expected to respond differently to exchange rate undervaluation compared to traditional trade in single-country goods. Thus, using the EORA dataset for 143 countries over the period 1995–2018, we assess the impact of this policy on a country’s backward and forward participation in value chains, with a special focus on two moderating factors, namely the quality of institutions and digitalization. Our results show that currency undervaluation displays a positive impact on these two ways of participating in GVCs. Consistent with what has been noted in a recent strand of literature, undervaluation acts as a compensatory factor for countries with weak institutions, and the impact of this undervaluation becomes more pronounced as the level of digitalization in the economy increases. These results remain robust to a battery of robustness checks.