Invoicing currency, exchange rate pass‐through, and value‐added trade: The case of Turkey

Abstract

We explore the role of invoicing currency and global production integration in the effect of exchange rate pass‐through on import and export prices. We use 3‐digit product‐level data classified by end use and 2‐digit sector‐level data displaying varying integration with global value chains from an emerging country, Turkey. Overall, pass‐through rate significantly affects both export and import prices. Contrary to the literature, pass‐through is significantly higher for local currency‐priced goods. The relative rate of pass‐through to the U.S. dollar and euro‐priced goods is determined by the type of products and value‐added trade. Stronger integration with global value chains and the use of a vehicle currency tend to smooth out the response of domestic prices to changes in exchange rates.

Payment Method and Invoicing Currency: Evidence from Turkish Textile and Clothing Exports

“…6 It is desirable to focus on an industry with the least involvement of global value chains to investigate the fundamental behaviors of choosing invoicing currency relative to payment methods. As evidence, using Turkish trade data, Saygılı (2023) found that the share of import content of exports for textile and clothing sectors (22.7%) is lower than the overall average (25.8%). 7 Manufacturing of machinery and equipment exhibits a considerably higher share of import content in exports (38.5%).…”