International production sharing and exchange rates of Asian countries

the long version

The expansion of international production networks (IPNs), alternatively referred to as “global value chains” raises important new analytical and policy challenges. This study demonstrates how the growing importance of international product fragmentation and intermediate goods in international trade has altered the links between exchange rates and international trade flows. This publication is not intended to provide comprehensive coverage of the topic. The focus is not on the macroeconomic determinants of nominal or real exchange rates. Instead, it is presents possible ways in which IPNs has changed the effects of exchange rates on international trade flows based on the views of “trade economists” where trade is responding to relative prices, measured as the "real" exchange rate.