Demand Volatility and Firm Export Margins: Evidence from Egypt

Yasmine Kamal ()
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Yasmine Kamal: Faculty of Economics and Political Science, Cairo University, Egypt

Journal of International Commerce, Economics and Policy (JICEP), 2023, vol. 14, issue 03, 1-19

Abstract: The study explains the export behavior of Egyptian firms under demand volatility in destination countries using detailed customs data and high-dimensional fixed effects. It finds that demand volatility negatively affects both the intensive and extensive export margins. The effects are particularly evident for large firms which reduce their export sales — especially over time — to more volatile destinations/products, are more likely to exit from exporting more volatile products and are less (more) likely to enter (exit) more volatile destinations. These findings confirm recent literature that emphasizes the greater elasticity of large firms to foreign demand shocks. They are also in line with risk aversion models in which the average risk premium increases with firm size. Given the disproportionate adverse impacts on large exporters, we find that higher demand volatility leads to lower aggregate exports, especially to geographically close and low trade costs countries. Accordingly, uncertainty in demand lessens the positive effect of lower trade barriers on exports.

Keywords: Demand volatility; uncertainty; export margins; firm-level; Egypt (search for similar items in EconPapers)
JEL-codes: F10 F12 F14 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S1793993323500151

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