Two worlds apart? Export demand shocks and domestic sales

Aksel Erbahar

Review of World Economics (Weltwirtschaftliches Archiv), 2020, vol. 156, issue 2, No 4, 313-342

Abstract: Abstract This paper, using a rich dataset on Turkish firms for the 2005–2014 period, analyzes the relationship between firm-product sales in different markets to identify the channels that link exports and domestic sales. First, I use an instrumental variables strategy and establish that an exogenous 10% rise in exports increases a firm’s domestic sales by 2.6% on average. Second, I do an analogous exercise at the firm-product level, and find coefficients that are almost twice as large, hinting to the importance of product-specific scale effects. Moreover, I propose a novel approach to isolate the production versus non-production factors that influence firm dynamics by focusing on non-produced (or carry-along trade, CAT) exports. I find that CAT exports also affect domestic sales positively, suggesting that spillovers at the firm level such as the easing of liquidity constraints play a role. In the process, I reveal that export demand shocks influence firms’ expansion in terms of employment, wages, and investment. Finally, my quantification exercise indicates that export demand shocks explain about 1.4% of the annual variation in Turkish domestic sales on average. This figure, which shows heterogeneities at the sector level, rises to 4.6% during the Great Recession in 2009, when demand in Turkey’s key export partners collapsed.

Keywords: International trade; Domestic sales; Export shocks; Carry-along trade (search for similar items in EconPapers)
JEL-codes: F1 F14 F61 L20 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Working Paper: Two Worlds Apart? Export Demand Shocks and Domestic Sales (2018)
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DOI: 10.1007/s10290-019-00364-z

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