Exports and capacity constraints - a smooth transition regression model for six euro area countries

Ansgar Belke, Anne Oeking and Ralph Setzer

No 1740, Working Paper Series from European Central Bank

Abstract: This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong 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. JEL Classification: F14, C22, C50, C51, F10

Keywords: domestic demand; exports; hysteresis; smooth transition models; sunk costs (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-eec and nep-int
Note: 1128184
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Exports and Capacity Constraints: A smooth transition regression model for six euro-area countries (2014)
Working Paper: Exports and Capacity Constraints – A Smooth Transition Regression Model for Six Euro Area Countries (2013)
Working Paper: Exports and Capacity Constraints – A Smooth Transition Regression Model for Six Euro Area Countries (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20141740

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