How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis

Miguel Ferreira, Manuel Adelino, Paulo Fagandini and Francisco Queiró

No 14640, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine how firms respond to domestic demand shocks using the large and unanticipated shock to government spending in European periphery countries during the 2010-2011 sovereign debt crisis. We find that firms with higher ex-ante exposure to government procurement contracts significantly increase their exports after the shock or exit. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Firms with high-skill workers, high productivity and more educated managers are also more likely to start exporting. Our results suggest that mature and high-quality firms drive the response of tradable industries to domestic demand shocks.

Keywords: Fiscal austerity; Exports; Investment opportunities; Financial crises (search for similar items in EconPapers)
JEL-codes: F10 G01 G30 H57 H60 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (2)

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Working Paper: How do firms respond to demand shocks? Evidence from the European sovereign debt crisis (2022)
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