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Exports and domestic demand pressure: a dynamic panel data model for the euro area countries

Elena Bobeica (), Paulo Esteves (), António Rua and Karsten Staehr ()

Review of World Economics (Weltwirtschaftliches Archiv), 2016, vol. 152, issue 1, 107-125

Abstract: Abstract The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results suggest that there is a statistically significant substitution effect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market translates into increased efforts to serve markets abroad, but, conversely, during times of boom, exports are not negatively affected by increasing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could represent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution effect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices.

Keywords: Exports; Domestic demand pressure; Asymmetry (search for similar items in EconPapers)
JEL-codes: C22 C50 F10 (search for similar items in EconPapers)
Date: 2016
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Journal Article: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2016) Downloads
Working Paper: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2015) Downloads
Working Paper: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2015) Downloads
Working Paper: Exports and Domestic Demand Pressure: a Dynamic Panel Data Model for the Euro Area Countries (2014) Downloads
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