Exchange Rates and Firm Exports: The Role of Foreign Ownership and Subsidiaries

Abstract

This paper examines the role of global production linkages on exchange rate elasticities by using Korean firm-level data. At firm-level, foreign-owned firms or firms with foreign subsidiaries participated in the Global Value Chains (GVC) play an important role in weakening the effect of exchange rate movements on firm exports. We find that the exchange rate elasticities of firm exports are significant and negative for domestic-owned firms and firms without foreign subsidiary whereas those are insignificant for foreign-owned firms and firms with foreign subsidiaries. After controlling exports to foreign affiliates, we still find that the estimated exchange rate elasticities of exports are statistically insignificant, but become negative and relatively larger for firms with global production linkages. Moreover, firms with higher GVC integration measure or more imported intermediate inputs have the significantly lower exchange rate elasticities of firm exports. It suggests that developments of global production linkages in the last decade play an essential role in explaining low exchange rate elasticity on exports.