More global companies can subdue the effects of the krona exchange rate on exports
Economic Commentaries, News A krona depreciation is expected to lead to increased exports. But as Swedish companies have become increasingly integrated in global production networks over the last 30 years, the krona exchange rate may have less of an effect on exports. This is indicated in the Economic Commentary “How do global value chains influence the effects of the krona exchange rate on exports?”
The krona exchange rate is important for Sweden, which is a small open economy dependent on trade with other countries. The textbook example says that a weakening of the krona means that export companies' products become cheaper on the export markets. But today, Swedish companies participate in global production networks to a much greater extent than 30 years ago. This means that they import goods and services in order to produce their exports and these imports also become more expensive when the krona depreciates. The goods and services can also cross several international borders several times before reaching their final destination.
In this Economic Commentary, the author have looked more closely at how the participation of the Swedish business sector in international production networks influences the effect of the krona exchange rate on Swedish exports. The analysis indicates that, in industries that participate extensive in global networks, the krona exchange rate has less effect on their export volumes. However, this does not mean that the exchange rate has no bearing on exports. But it may be that the krona exchange rate needs to change somewhat more today than previously to have the same impact on export volumes.
By Erik Frohm, who works at the Monetary Policy Department of the Riksbank.
The Riksbank's Economic Commentaries contain, for instance, short analyses and debate articles. The opinions expressed in Economic Commentaries are those of the authors and are not to be seen as the Riksbank's view.