The Impact of Exchange Rate Fluctuations on Export Performance in the Context of Global Supply Chain Participation: The Case of Automotive Exports in Egypt

Participation and upgrading in global supply chains are considered major challenges facing developing countries, requiring a revaluation of the effect of monetary policy measures.Accordingly, this article examines the impact of exchange rate fluctuations on Egyptian automotive exports in light of the rising significance of international production fragmentation.It employs the Pesaran-Shin-Smith (2001) cointegration technique to estimate demand for Egyptian automotive exports -both to the world and to Egypt's main trade partners-using quarterly data over the period 2000-2020.Results showed that participation in global supply chains has disrupted the relationship between exchange rate changes and export performance, contrary to predictions based on the conventional elasticities approach.This distortion is further emphasized by the high imported value-added throughout the supply chain in exported goods, particularly that Egypt's firms are found mostly in the downstream tiers of the chain.The demand for automotive exports is found to be highly elastic in the long-run, but with a positive sign.Hence, the pound depreciation is expected to negatively affect automotive exports.One key policy implication is that the real depreciation is expected to have a desirable impact on Egyptian automotive exports only if the domestic valueadded is raised while its foreign counterpart is reduced and when the automotive sector becomes engaged in its global supply chain through forward linkages rather than the mere current backward linkages.