Exports and Capacity Constraints: Evidence for Several Euro Area Countries

Ansgar Belke, Anne Oeking and Ralph Setzer

No 5455, CESifo Working Paper Series from CESifo

Abstract: We argue that, under certain conditions, firms consider exports as a substitute for domestic demand. Our econometric model for six euro area countries suggests domestic demand and capacity constraints as additional variables for export equations. We apply the exponential and logistic variant of a smooth transition regression model and find that domestic demand developments are relevant for short-run export dynamics particularly during more extreme stages of the business cycle. A substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy, providing evidence of the importance of sunk costs and hysteresis in international trade.

Keywords: domestic demand pressure; error-correction models; hysteresis; modelling techniques; smooth transition models; exports; sunk costs (search for similar items in EconPapers)
JEL-codes: C22 C50 C51 F10 F14 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Exports and Capacity Constraints: Evidence for Several Euro Area Countries (2015)
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