Exchange Rate Devaluation and Reshuffling of Global Jobs

Abstract

Current debates presume that devaluation of one country's currency may transfer the production of imported intermediate goods to the devaluating country. This paper argues that in a global production network involving more than two countries in the production of fragments, this presumption may not hold. With a simple Ricardian model of fragmentation, this paper shows that the production of fragments can be transferred only if countries have close comparative advantage. Using data from the World Input Output Database, our model is found to be empirically supported. JEL Acknowledgements:We are thankful to Lucia Tajoli, Salvatore Baldone, Anna Paola Florio, Davide Suverato, Andrea Rongone, Giacomo Saibene and Silvia Sicouri for their precious contributions. This manuscript also benefits from comments by Jonathan Willner, Antonin Rusek and the seminar's partecipants at the 73rd IAES Conference held in Istanbul. We would like to thank the anonymous referee for helpful comments.