Backward participation in global value chains and exchange rate driven adjustments Swiss exports
At a glance
- Project leader : Dr. Dario Fauceglia
- Project team : Dr. Andrea Lassmann, Dr. Anirudh Shingal
- Project budget : CHF 50'200
- Project status : completed
- Funding partner : Federal government (Staatssekretariat für Wirtschaft SECO)
- Project partner : Staatssekretariat für Wirtschaft SECO
- Contact person : Dario Fauceglia
Description
The sharp appreciation of the Swiss Franc and its ongoing
strength despite the exchange rate
peg that the Swiss National Bank introduced in 2011 (and lifted in
2015) have raised
fears about negative export growth and resulting losses for Swiss
exporters. From an economic
perspective, a temporary currency appreciation may even have a
permanent adverse
effect on exports. However, a high level of integration into global
value chains (GVCs)
could potentially mitigate these negative effects by simultaneously
rendering imported intermediate
inputs cheaper.
This significant use of intermediate inputs by Swiss
manufacturing industries and firms has implications
for their economic resilience to exchange rate movements. The
adverse effect on Swiss manufacturing
exporters resulting from an appreciation of the Swiss Franc would
be expected to be
mitigated at both margins of trade by decreasing the relative
prices of imported intermediate
inputs, thereby reducing the need for export price increases or to
incur lower profit margins. This would result in a higher
resilience of export demand to exchange rate fluctuations.
Using both product-level and firm-level panel data, our
results suggest that Swiss exports (intensive margin) and the
export probability(extensive margin) are negatively affected by a
currency appreciation. However, this
adverse effect is mitigated in sectors and firms that are more
integrated in GVCs (natural heding). Moreover, our results also
indicate that export hysteresis is a real concern, that is Swiss
Franc appreciations can have long-lasting negative effects on the
structure of the Swiss export economy.